Return to Office Heats Up
Announcements are rolling in and it is tense for white collar world. Firms are in a battle to get employees back into the office. Articles about the issue or individual company’s efforts are a near daily occurrence now. Previously, I tackled the big commercial real estate interests concerned about this. A new problem has shifted the problem into a new phase. Companies are sitting on their own empty buildings.
The reason this is now a thornier problem is that 2022 employee head counts provided expectations, and Boomer retirements in ‘23 gave firms cause for hiring freezes, targeted backfilling hires and even layoffs. Firms could see their needs and made proactive moves anticipating a recession or slowdown. They know hypothetical space they need. Return to Office has stalled so this new propaganda narrative is needed.
As we worked through covid, firms evaluated if WFH affected productivity. For many firms, there was no change. Smaller firms could make decisions about leased space and did so with an eye on cutting overhead. We are now looking at over a year’s worth of lease terminations or modifications. Those leases are long term but do have fine print clauses that allow exit with small penalties. Many of those corporate towers owned by specific firms are leased for prestige floors or views. Not even towers, satellite office buildings are real estate plays by large companies. They spent a year looking for new tenants and are lacking revenue.
These firms may have played rent arbitrage with smaller offices for their employees while they pulled higher rent from tenants in their prime location buildings. Large firms are consolidating their scattered rentals and decreeing that X location is the new office. Hybrid work schedules are maintained to balance WFH preferences and justify their buildings with the potential for +50% occupancy.
Mega corporations like Meta announcing Return to Office initiatives influence everyone downstream their industry. It is a copycat culture. Firms are in a bind because WFH is the one definite quality of life improvement for white collar workers in the 21st century. Anyone who can offer full time remote now has a non-pecuniary pull for employees to join their firm. Force employees back or create hybrid schedules and a firm loses its edge compared to any other company that is willing to deviate. Coordination is difficult because with Boomer retirements, there is a huge demand for skilled white collar workers.
I recently visited a company caught in this trap. They lost tenants. They decided to term their own small leases and consolidate employees into a big office building. Hybrid schedules started July 1st. In their building with 3000 employee capacity, they claimed 30% each day. We walked through it, did a count and found it to be under 2%. We had an honest dialogue. Enforcement is difficult. Monday was 50% because they focus meetings on Monday but yeah, uh ummm every other day is unknown. American industry concentrated unnecessarily a lot of white collar work into the same ten metro areas so there is always a competitor offering full WFH.
Other firms have implemented rules like if you live within 25 or 50 miles of an anchor office, you have to work hybrid 2 or 3 days a week. What happens when your employee’s day care is 10 miles in the opposite direction? Hardship exemption? Firms are micromanaging these decisions and creating more strife and work managing employees.
They do this because they are facing revenue loss and holding fat dead real estate on their books. They cannot sell it because who will buy in this market? They cannot fill the spaces. They also have an entire class of middle management that needs the face to face contact to feel justified in their jobs.
There is an element of control in all of this. Prior to covid, corporate America recycled the ‘70s concept of the open office. Make sure all employees could watch their peers and not allow one moment of relaxation. No one liked it but it turned the office into a panopticon. This was the beauty of remote jobs and WFH. The little guy could become a mercenary in return for years of callous management behavior. The WFH-Return to Office battle is about control. Do not bet against those in control wanting to maintain a firm grip, but do not be surprised if the solitary white collar grunt can eek out a win for once.