Spaces   //   September 5, 2022

Businesses continue to scale back their real estate investments

Even as many offices reopen the doors, and with the likes of Elon Musk taking a hard line about forcing employees to return, businesses continue to scale back their square footage as hybrid and remote work arrangements remain the norm.

Jacob Rees-Mogg, the U.K.’s minister for Brexit opportunities and government efficiency, revealed he plans to offload £1.5 billion ($1.7 billion) worth of London office space because of the number of civil servants who continue to work from home, as The Guardian reported. This, as U.S. and Canadian pension funds curb their own real estate investments, betting that full-time office life is a thing of the past, according to The Wall Street Journal.

The flexible work firm Robin, in a recent survey of 247 business owners and other business decision makers in the U.S., found that 46% planned to reduce their office space over the next year. When asked by how much, 60% said they looked to cut their space by 50% or more. Robin estimated that could result in a cost savings for businesses of anywhere from $625,000 to $3 million per year. 

More than 83% of those surveyed said they were operating under a hybrid setup as a cost-savings measure, with nearly half (46%) using half of their office space or less. Significantly, 60% of those companies had already reduced their footprint prior to the pandemic. 

Meanwhile, in another report, the professional services firm PwC found that companies are cutting their real estate commitments more than any other cost, likely as a response to hybrid and remote work trends. Of 722 business decision makers in the U.S. polled, 22% said they were scaling back their office spaces. Financial services and healthcare are leading the way, with 30% and 29%, respectively, cutting their investments in real estate. 

Meanwhile, companies are upping investments in areas that will help drive growth, PwC discovered. About half (53%) are boosting expenditures in digital transformation, while investments in IT (52%) and cybersecurity and privacy (49%) are also on the upswing. Forty-eight percent are increasing investment in customer experience and 40% are putting more dollars toward research and development.

“With a looming recession and operational efficiency more critical than ever, we may see more companies take a longer-term approach to remote or hybrid work, curtailing traditional cost cutting measures of headcount reductions with savings in the long term real estate footprint.”
Laurie Chamberlin, head of recruitment solutions for North America at The Adecco Group’s LHH Recruitment Solutions.

Still others are looking to reconstitute their spaces versus shedding them. As Byron Carlock, who heads PwC’s real estate practice, said: “Right now, there are two camps: the thoughtful planners [who say] they want to use space for the best match between their operational and strategic needs and trim any fat they can but not going to give up on the office space. Then you have the reactionary cost cutters that say, ‘Oh my gosh, we’ve got too much space, it’s too expensive. We are going to make do with less and we’re going to let remote work take up the slack.’”

While many large cities are experiencing a surplus of office space, Carlock pointed out that the “hub and spoke” office model many businesses have embraced will necessarily mean an increased need for square footage in suburban areas. Meanwhile, the requirement for more office space continues to grow in certain markets, notably in the Sunbelt.

Laurie Chamberlin, head of recruitment solutions for North America at The Adecco Group’s LHH Recruitment Solutions, believes that beyond cost savings, employers scaling back on space are responding to what their workforce is telling them they should prioritize — namely, more flexibility, better compensation and benefits and investment in employee well-being. 

“With a looming recession and operational efficiency more critical than ever, we may see more companies take a longer-term approach to remote or hybrid work, curtailing traditional cost cutting measures of headcount reductions with savings in the long term real estate footprint,” she said. “For some organizations, this can be a win-win.” 

One of the more innovative companies when it comes to reimagining the workspace is the strategy, design and marketing firm Huge, which has instituted a corporate model that rejects the traditional boundaries of a physical office and prioritizes flex work and incorporates in-person gatherings. Huge is establishing what it calls “global experience centers” that operate more like clubhouses than traditional headquarters. 

This summer, Huge inked a lease for 71,000 square feet at Dock 72 on the Brooklyn waterfront for the first such center. (Its current location, also in Brooklyn, is 55,000 square feet.) The move will take place early next year. Meanwhile, Huge plans to open a second center in Medellín.

Huge arrived at its new real estate strategy after surveying its 1,200 global employees, most of whom (91%) said they work productively at home. Eighty percent said they enjoyed not having to commute, while about 30% had relocated or planned to. No more than 10% of employees were coming to the office. 

“Come the start of 2022, it was becoming abundantly clear that gathering for work was no longer about a permanent desk in one location anymore,” said Huge global CEO Mat Baxter. “After a global pandemic and two years of working remotely, the toothpaste can’t be put back in the tube.”

Historically, Huge had offices in 13 locations worldwide. It is allowing its current leases to sunset while still providing full, and voluntary, access to employees. It is also working with co-working spaces to provide memberships for those looking for alternative work setups. 

But Baxter stressed it did not make this decision to generate cost savings. “It was a thoughtful reinvestment and realignment of employee connection in our new-world working model. Our ambition is to build a hybrid cultural experience at Huge that reflects the modern way we’re working today,” he said.

Three questions with Matt Ephgrave, managing director, corporate catering and food delivery service Just Eat for Business

What are the most notable changes you’ve seen in office culture at Just Eat for Business since the pandemic? 

The pandemic made Just Eat for Business employees and workers across U.K. offices realize the things they value from office life – social connections and collaboration. Two years of fully-remote work definitely took its toll. Now that it’s possible, we’re seeing many people keen to work in person alongside their colleagues again.

I think that two-year hiatus has, in fact, fuelled the desire for a deeper, more involved working experience. The focus has expanded to provide a more holistic experience including non-work activities too. We’ve also noticed this with our customers, who are ordering more food for informal work events than they did in the years before the pandemic (pop-up orders have increased 243% since 2021). 

For the leadership team, how challenging are these changes to manage and why?

The pandemic made us even more aware of the fact that company culture is continually changing. We knew that we had to be agile, and committed to ensuring our culture was relevant to the current climate, and so we changed things accordingly. We changed our office space to cater for a new hybrid model, and we changed the way we work. However, the core elements and values of our business remained the same. 

We know good office culture can only be maintained by hiring employees who align with our values. That means an extensive and thorough interviewing process.

What changes have you implemented at the company to cope with these challenges? 

We amended our office to suit a new hybrid model. We gave the office a refurb by stripping out some of the desks and replacing them with sofas and high tables surrounded by bar stools to facilitate collaboration and discussion. The office is now designed to cater for meetings as people now often want to do their desk work at home. 

We also put great emphasis on communication between employees, to reconnect and maintain relationships – for lunch, everybody sits around a shared table. We’re also strong on transparency and speak regularly as a company. We have a weekly all-hands to communicate the business updates to really involve all of our employees from the offset. — Jessica Davies.

By the numbers

  • The economic burden of lost wages due to long Covid is approaching $200 billion a year and is likely to rise.
    [Source of data: The Brookings Institution study.]
  • Employers lose $300 billion a year due to the lost productivity and high absenteeism caused by employees who are going through divorces.
    [Source of data: Good Housekeeping and SupportPay report.]

Quote of the week:

“It’s [quiet firing] not being openly talked about for various reasons, because that’s another way of passive aggressive behavior that we’re seeing from employers.”
Izabela Lundberg, founder of the Legacy Leaders Institute.

What else we’ve covered

  • It’s managers’ turn to feel uncomfortable as common passive aggressive techniques used to force people to quit – dubbed “quiet firing” – have been dragged into the spotlight in the wake of the “quiet quitting” media attention.
  • From the hundreds of billions of dollars being lost as a result of workers off sick with Covid, to cashflow and supply chain issues and Corporate Long Covid, we look at how Covid is still affecting businesses three years on.
  • The rising cost of living is biting, but are companies really acting in their employees’ best interests by facilitating – and even encouraging – PTO cash out?
  • LinkedIn is expanding access to certifications from companies like Meta and Oracle in an effort to bolster a skills-first labor market.
  • More than a third of millennials and half of Gen Z would be happy to receive 50% of their salary in Bitcoin and/or other cryptocurrencies.
  • Summer Fridays usually come to an end after Labor Day, but some companies are extending it until at least the end of September.

What we’re reading

  • There’s a movement of workers who relish going into the office on Fridays – because no one else is there. [WSJ]
  • You may soon be asked to take a pay cut for working from home. [Los Angeles Times]