Two companies, both major players in their respective industries, in recent days have indicated that they are shifting their workforce policies to emphasize working from home.
JPMorgan Chase is one of these companies. Its employees will be working remotely part time, cycling between their homes and the office, Daniel Pinto, the bank’s co-president, told CNBC. “Depending on the type of business, you may be working one week a month from home, or two days a week from home, or two weeks a month,” he said.
The other is Ford Motor Co., which is redesigning its office space for a future in which many of its employees will work remotely at least some of the time, Jackie Shuk, a global director at Ford’s real-estate arm, told the Wall Street Journal.
If only for competitive reasons, it is safe to assume that other companies in the financial services and auto industries will follow suit. “As a bellwether of the financial services industry, [JP Morgan’s] move implicitly applies pressure to the rest of the industry to follow suit in providing this flexibility/ benefit to their employees,” according to a research note by Mizuho Securities.
An Emerging Trend
The pandemic is only six-months old for the US, but that has been enough time for it to remake the office sector. Almost immediately after the shutdowns were ordered, companies that had sent their employees home to work realized that, contrary to previous belief, they were just as productive there as they were in the office. About a month after the US lockdowns for the pandemic began, Morgan Stanley CEO James Gorman told Bloomberg Television that it had become clear to him that the firm could operate with “much less real estate.” The productivity of Morgan Stanley’s hastily-assembled remote workforce turned out to be strong enough that he could see a future where “part of every week, certainly part of every month, a lot of our employees will be at home.”
As the pandemic wore on, more and more companies were coming to the same conclusion, either mulling out loud the benefits of a permanent remote workforce or actively making plans to move in this direction. In a Gartner survey in April, 74% of CFOs said they intend to move at least 5% of their previously on-site workforce to permanently remote positions post-COVID 19. Nearly a quarter of respondents said they will move at least 20% of their on-site employees to permanent remote positions.
Around this time Facebook CEO Mark Zuckerberg famously declared that up to half of Facebook’s employees could be working remotely in five to 10 years.
At first, office landlords were unsure what to make of these announcements. It seemed to be a trend but then again, emotions were riding high during the pandemic. And more than one analyst has noted that similar intentions were vowed after the 9-11 terrorist attacks, and these never came to fruition.
But now, six months in, it increasingly appears that companies are indeed intent on scaling back the role the office plays in their operations. A newly-released survey by KPMG finds that 68% of large company CEOs plan to decrease their office footprint.
The work from home genie is out of the bottle, Mizuho Securities declared in its note.
“We believe this has negative ramifications for demand for pricey office real estate in Central Business District markets. We expect pressure on occupancy and rents over the next few years across the traditional office market due to the WFH movement, but most especially in CBD markets like NYC, San Francisco and Boston.”
Mixed Views
It should be pointed out that large leases are still being inked even in this current uncertain environment.
In New York City, for example, AIG took 545,000 square feet downtown and in NoHo, and Raymond James took 160,000 square feet in Midtown. Other deals include Facebook’s recent lease for 730,000 square feet on the west side of Penn Station and TikTok’s lease for 230,000 square feet in Midtown.
Also, earlier this month Amazon announced plans to open or significantly expand six tech hubs in Dallas, Detroit, Denver, Manhattan, Phoenix, and San Diego. The investment for the e-commerce giant will total more than $1.4 billion and will create 3,500 new tech and corporate jobs.
These leases show that the office, contrary to some declarations, is not dead. But its role is certainly changing, according to people in the commercial real estate community. Just how depends on the person you ask.
For example, Robert Morgenstern, founder and principal of Canvas Property Group, believes that a fundamental shift is underway, albeit a nuanced one.
“It probably won’t be five days a week at home for all staff but certain industries are more likely to shift larger portions of their teams online,” he tells GlobeSt.com. ”In industries or firms that are more vertically integrated, it may be the case that certain divisions could function better with a bit more time working from home.”
As the work environment changes, company culture and relationships with the people you work with may become even more important, he adds. “Overall, I don’t see anything close to a permanent shift to remote work in the real estate world.”
The office is still core to employees, agrees Remy Raisner, founder and CEO of The Raisner Group. ”If anything, what they pandemic has proven to me is that employees need and want to be in an office environment. Many miss the social interactions and for companies, you cannot build a culture online. You can maintain it, for a short period of time, but longer than that, it erodes the creativity, competitiveness and cohesion of any organization.”
Yet at the same time, employees have gotten a taste of the benefits of flexible work schedules and have come to realize—along with their employers—that working from home doesn’t affect productivity. Keith Wasserman, founding partner of Gelt Inc. Wasserman foresees a shift to more flexible work in which remote work will be a part of the solution. “A vast majority of employees realize they can work effectively from anywhere with a laptop and a cell phone and don’t need to be chained to the desk full time. In fact, they could be even more productive remotely without the constant distractions at the office and the long commutes to get to work.”
Ultimately, he predicts, companies will keep offices but they will require a smaller physical footprint with more flexible workspace options.