When Facebook parent Meta announced last week that it would pay more than $180 million to break its lease on a central London office, it was just the latest blow to an already battered global commercial real estate market.
Despite many companies — including tech giants like Meta, Amazon and Google — demanding that employees return to work and employers striving to enhance the in-office experience, worldwide demand for square footage remains just half what it was pre-pandemic, hitting commercial developments particularly hard in business capitals like London, New York and San Francisco.
While bosses have sought to better utilize office spaces and have introduced a range of enticements to stoke excitement among employees about returning — focusing on perks like free food, fanciful design elements and commuter discounts — they have largely failed to make hybrid work really work, as some see it.
“Mandating an office-centric approach to working is a mistake and overlooks the numerous benefits of hybrid work,” said Caitlin Duffy, director in Gartner’s HR practice. Those benefits, she stressed, include more opportunity for employee flexibility and downtime, advantages for underrepresented and neurodiverse talent, opportunities to cut overhead on site, and a recognition that many people are significantly more productive and more engaged in a hybrid setting.
“The problem leaders are experiencing is not the result of hybrid working but a failure to fully optimize it,” Duffy contends, adding that “a weakened workplace culture is not the result of having fewer employees on-site but a failure to intentionally build culture connectedness into the hybrid workplace.”
This follows Gartner’s finding that connectivity and productivity challenges are not due to hybrid work arrangements but, rather, a failure to optimize hybrid work and realize its full benefit. According to Gartner’s research, more than half (54%) of HR leaders believe their employees are less connected to their organizations now than before the pandemic. More than half of employees who are afforded flexibility (53%) report a high degree of connectedness, versus just 18% of those with a low level of flexibility.
“We’re just seeing the repeat of old behaviors, silver-bullet solutions: ‘Oh, if we just bring people back to the office, culture will be great again,’” said Jennifer Moss, a workplace strategist and author of “The Burnout Epidemic: The Rise of Chronic Stress and How We Can Fix it.”
Some business leaders maintain that their RTO policies have been well received by employees. “In our experience, our team is feeling much more community and comradery by returning to the office,” said Gary Mittman, CEO of KERV Interactive, an AI-driven video technology company. “We have not implemented a required time in office; rather, we allow the team to create the friendly space they want to come to.”
At the end of the day, Moss sees company culture as independent of whether employees are in the office or not. “Culture requires curation,” she said. “Some of the best companies are remote-first, but that doesn’t mean they don’t appreciate in-person experiences. The best companies make it all about forming productive relationships.”
Despite a cooling but still-strong U.S. job market that one economist described as “near perfect,” companies continue to see reducing headcount as a key cost-saving measure in the face of a possible recession. Fewer employees mean, of course, still more bad news for owners and operators of commercial real estate. In fact, a report earlier this year revealed that half the world’s largest companies were planning to reduce their office footprint over the next three years.
All the talk about recession and companies trimming employee rolls does not appear to be putting a crimp in commercial construction, meantime. Gleaming new office towers, some of them supertall structures, continue to rise in cities like Dallas, Atlanta and Miami, where developers of one commercial complex recently proposed erecting five additional buildings totaling some 4 million square feet.
That building boom flies in the face of a warning by commercial real estate firm Cushman & Wakefield that there could be more than 1 billion square feet of unused office space in the U.S. by 2030.
One billionaire real estate investor believes the current downturn in office demand is only the beginning of a protracted slump. “I think we’re just in the first inning of this correction,” Jeff Greene recently told CNBC.