Will remote working mean the end of the office?

The number of people working from home is at an
all-time high as a result of Covid-19, but is it too soon to draw the shutters on conventional office space?

We’ve come a long way since former Yahoo CEO Marissa Mayer banned remote working in 2013. In a memo to employees, Mayer said communication and collaboration were critical, believing that “speed and quality are often sacrificed” when working from home. Less than a decade later and perceptions have changed dramatically, not in the least due to the coronavirus pandemic. Quarantines around the world have forced firms to take operations online, often in a matter of days, while remote working has become the norm for many would-be office staff. But is this likely to remain the case?

The proportion of mainly home-based jobs has risen by 80% in the past two decades in the UK; however, that was still only 1.7m people out of a workforce of 32.6m. Then, when nationwide lockdowns hit in March 2020, more than 46% of people in employment took to working from home, while in London, the figure rose to 57%.

Of course, this varies across sectors and industries, with labour-intensive and manual skills sectors such as manufacturing, packaged goods and key frontline sectors such as healthcare seeing up to 50% of employees working remotely. Sectors including technology, government, insurance and financial services have around three-quarters of employees working from home.

Many tech firms had been leading the charge on home working, and the pandemic seemed to reinforce this as a long-term strategy. In May 2020, Facebook boss Mark Zuckerberg said as many as 50% of Facebook employees could be working remotely within the next five to 10 years, while Twitter said some employees will be able to work remotely “forever”. And while Google said its employees could choose to work remotely until July 2021, it is reportedly in talks to buy its London headquarters complex for £800m, signalling it has no intention of closing the doors of the modern office.

The extended period of remote working has also altered the way employees view home offices. In a recent YouGov survey of British workers, 57% of those in employment before the outbreak and who intend to stay part of the workforce said they want to continue working from home when the pandemic is over. As a result, firms have had to reevaluate their office space needs. In a PwC survey of the financial services sector, nearly half of responders said most of their workers could feasibly work remotely. Almost three quarters (74%) of firms said they were reviewing their office space requirements with 67% citing a need to reconfigure use of existing office space, and 62% looking to potentially reduce it.

In the US, real estate firm Cushman & Wakefield said in 2020, 14% of office space was vacant across the country, up from 12.8% the previous year. It estimated that vacancy rates could reach 17% by 2022.

Graphic 1

Jason Vanslette, a mortgage foreclosure litigation specialist with US law firm Kelley Kronenberg said: “The slowing economy from Covid and the existential question of whether employees can continue working from home over the long term means the office sector will continue to struggle for the next two years.”

Concerns over the commercial property market have stretched into the retail sector. UK commercial property investment firm Land Securities saw its half-year losses increase from £147m to £835m, following a £945m drop in the value of its portfolio.

The firm’s tenants – particularly those in the hard-hit retail sector – have struggled to pay rent during the crisis as lockdown restrictions and increased home working hammered visitor numbers, impacting Landsec’s rental income.

Strangely, it’s been a tale of two halves for co-working spaces. Shared offices suffered in the immediate aftermath of the virus as memberships and contract renewals dropped 40% from March, and membership inquiries by 70%. But long-term plans for remote working, businesses needing flexibility and workers needing a change of environment are driving up demand for co-working spaces.

JLL, a US real estate services firm, has predicted that flexible options will comprise 30% of the office market by 2030, compared to less than 5% now. And the World Economic Forum estimated that nearly 100m workers in 35 advanced and emerging countries could be at high risk of job loss as they are unable to do their jobs remotely. So what does this mean for the procurement of office space when flexible working becomes business as usual?

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Gareth Hughes, procurement, property and fleet director at logistics firm Whistl, says it’s unlikely that firms will bypass the office altogether as you “can’t replace good engagement”. “You can try and stay engaged with your team but you’re not as well-engaged with other functions, and those useful watercooler conversations or chance meetings disappear.”

Hughes said the future of the office could be “less desk but more engagement space” to accommodate communication. “Flexibility is the key word. We need to create more meeting spaces so that colleagues can use the office as an engagement hub where they can connect, engage and work as teams. It doesn’t necessarily mean we will need less space.

“Talk to management and staff to understand what they need from an office environment and align this with the business needs,” he said, adding that a shift to a hybrid way of working doesn’t mean the employer is free of cost. “Employers need to keep their fingers on the pulse of staff wellbeing, morale and productivity. You cannot allow it to become out of sight, out of mind. We possibly need to think about how technology helps here, not just for work access or meetings,” he said.

“There will be more employee liability claims as a result of working from home. How many employees have the right workstation set up at home? A hidden cost could be workplace injury claims.” It might be time to reevaluate how space is used. “If you have a short-term lease or a break, consider your options and whether your current environment provides what you need. Can you reduce costs by reducing your footprint or moving office?,” he said.

“If you’re near the end of your lease or a break, you’re holding the cards because you can talk to your landlord and say you don’t need all this space and want a reduced rent. The landlord is likely to take your offer because they can’t afford to have it empty,” he said. Firms still in a lease could look at subletting, law permitting, as a way of mitigating costs. “There are watch points here such as cutting too deep too soon, disruption for staff and costs of fit-out. They all form part of the business case and each needs to be considered.”

Owners and occupiers should start considering their needs against how much better off they would have been without property costs during lockdowns. As Wark said, “It could literally mean the difference between solvency or insolvency.” 

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