05 August 2021
A personal view of the evolving role of real estate in a world of technological, social and business change, by Richard Pickering, Chief Strategy Officer, UK.
Reigniting Offices: Tackling the Root of the Problem
Welcome to this week’s blog. If you’d prefer to listen to an audio version, click here for the podcast.
The advantages of working in an office compared with one’s living room are manifest. Designed for the activity of work, good quality offices offer better lighting, better quality air, better digital connectivity and a range of other work amenities, printers, stationary, coffee; the list goes on. They also tend to be situated in places that offer wider benefits. The centres of our cities provide workers with better opportunities to connect with others, and a much broader range and quality of social amenities, like restaurants and cultural attractions. And yet in spite of these significant benefits, the evidence suggests that, given a choice, workers would choose to spend less than half of their working week in the office.
In this week’s blog, I ask why it is that workers are making this seemingly irrational choice. I offer a series of explanations, and set out what corporates, investors, and city governments should do if they want to change people’s minds.
Sitting in 2019, it might have been surprising to understand that many people wouldn’t want to work in offices. However, that would have been based on lazy thinking; we should have seen this coming. Let’s wind back a few decades to understand how easy it is to misconstrue the future if you adopt a superficial understanding of the trends that will shape it.
Remote shopping in the 1960s An article in Time Magazine from 1966 considered the potential impact of ‘remote shopping’:
‘As for shopping, the housewife should be able to switch on to the local supermarket on the video phone, examine grapefruit and price them, all without stirring from her living room. But among the futurists, fortunately, are sceptics, and they are sure that remote shopping, while entirely feasible, will flop - because women like to get out of the house, like to handle the merchandise, and like to be able to change their minds.’
Wow; where to start with this one? The context that over a quarter ($4.28tn globally) of shopping is now performed online tells us that remote shopping did not in fact ‘flop’. What did these sceptical futurists get wrong?
Their first mistake was underestimating the technology. Despite talk of ‘video-phones’ (tick), in 1966, the only real context for remote shopping was mail order catalogues. Littlewoods, JCPenney and Sears had all been in the remote shopping business for decades by the 1960s, but the process was still clunky and long. Delivery times were off-putting, and the ability to ‘change one’s mind’ didn’t benefit from current consumer protections. The big failure in vision, however, was that remote shopping would involve ringing up someone in the store on a video-phone, as opposed to using automatic internet forms and marketplaces. For many obvious reasons, the former just wouldn’t work, or offer a significant advantage for most shopping trips, and so the logical flow based on this assumption was naturally that it would flop.
Their second mistake was ignoring social change. In particular, the thesis equated shopping with women and women with housewives. In 1966 this was not really an acceptable mistake; female participation in the workforce had been steadily rising since the 1920s. In the late ‘60s, about 50% of women were working and the trendline was sharply upwards. Working women didn’t have all day to spend ‘examining grapefruit’. And although 80% of purchases are still today made by women, men now account for a much more significant percentage of mobile shopping transactions.
A further social change that should have been visible by 1966 was the change in the nature of shopping. The ‘big four’ UK supermarket chains had started to consolidate in the 1960s, focussing on a self-service convenience model. The game (at least for groceries) had changed and was about convenience, price and efficient execution. Sure, some people still liked to ‘handle merchandise’ but for many this would increasingly be traded off against saving time. And this was the nail in the coffin of Time’s future thesis.
Back to the future of offices
Back to (almost) present day, in 2019 it may have been hard for many to conceive why workers would shun the office. The Time Magazine write up by a real estate futurist might have looked like this:
‘As for work, the modern businessman should be able to access his files from home, have a conference call with his colleagues over Skype, and carry out transactions from the comfort of his living room. But among the futurists, fortunately, are sceptics, and they are sure that remote working, while entirely feasible, will flop—because businessmen like to get out of the house, spend their day in palatial offices and are social animals who like to converse with colleagues.’
You can almost still hear this language used in discussions over the past year. However, again, this would have been predicated on a number of failures of vision and mistaken assumptions; again, mainly to do with technology and social change.
The first failure about technology is now clear. Audio-only interactions will always be inferior to audio-visual ones. The video call also has significant shortcomings; however, imagine what the last year would have been like if you had relied only on audio. The sudden and radical adoption of video conferencing was not widely expected in 2019, and so it would have felt logical for many who had only experienced audio interactions (including most of our industry) that remote working would flop. However, looking across other industries, where this was already much more common, combined with the rapid growth of cloud computing, should have provided clues.
Secondly, consider how the following social and societal changes have impacted on the desire to come into an office:
Excessive hours – In recent years, the number of hours worked by professionals, particularly in London, has been increasing steadily, and those reporting working ‘excessive hours’ has increased by 15% over 5 years. The amount of corresponding free time has been decreasing, and for many, free time is becoming a more important factor than many other social desires.
Longer commutes – Price and amenity pressures have been pushing people further out of CBDs. Combined with failing infrastructure and increased congestion, commute times have been getting longer and longer. The average time spent commuting in the UK each day is now about an hour (84 mins in London); and this has increased consistently in every region of the UK over the last decade. This conspires to further reduce valuable free time.
Increased commuting costs – Not only (and perhaps also partly because) commute times are getting longer, the cost of commuting as a percentage of income has also been increasing. In general, over the past decades both rail fares and petrol have risen above the cost of the inflation / the change in average earnings, increasing the cost of commuting.
Creaking infrastructure – So both the time and cost of commuting have risen; and importantly at the same time the quality of commuting has decreased. I seem to recall believing in my youth that 1st class travel meant champagne and silver service. The painful reality is that on modern commuter trains it only gets you a seat and a table (if you’re lucky) for double the cost of a standard fare. Meanwhile in standard class many commuter services are now at over 200% of their stated capacity, with a table being absolute luxury, and not having to stand under someone’s armpit for the whole journey being a good commute. Commuting has become an unpleasant experience, and not an opportunity to be productive.
Diversity of workforce – I used the phrase ‘businessman’ provocatively in the statement above. Since the 1960s the workforce has of course become much more gender balanced. With a shift to dual-income households, wrapping childcare commitments around work (for both women and men) now makes working traditional hours at distance from one’s home challenging. Over the same period a better understanding of neurodiversity in the workforce hasn’t been reflected in action or sentiment. 40% of workers are introverts; however, the ‘social animals’ which make up a high proportion of management still speak as if their viewpoint is held by all; and the modern open-plan workplace, with ever higher densities and ever lower privacy largely reflects this.
And so, if you were looking for it, you could see a clear series of trends emerging pre-pandemic that made coming into the office 5-days per week much less appealing than it once was. Interestingly, not many of these actually relate to the office itself. Not everyone likes to be social; many are in fact more productive when they are not. However, critically, even those that do are starting to trade off the value of social connections against the pain of commuting. A rejection of the office (or the commute) nevertheless puts workers on a collision course with many corporates (who believe that productivity is higher in the office) and investors and city governments (who have significant vested interests in the performance of cities based on the pre-existing work model). What’s to be done? In this final section, I offer solutions that I believe will work for all.
A model for a successful new normal
For corporates – much will boil down to power imbalances in your respective labour markets. However, if in contrast to your own corporate position, your employees have the option of shifting to an alternative firm or industry that doesn’t require commuting, then you would be wise to respond. Recent surveys suggest that more than half of employees would sacrifice 10% of their salary to secure flexible working arrangements. If competitive pressures are high, one option is to pay workers 10% more; the better option is to change the workday. My advice to employers who want to see workers back in their offices is simple: absorb their commute into the working day. By changing 9-5 to 10-4, you will retain loyalty, and chances are they will still be as productive, whether by putting in as many hours, either when they get home or during their commute, or just upping their work rate. Beyond that, you need to provide an inclusive workplace that works for all, and not just for those that shout most loudly. This includes private spaces and quiet environments in addition to the more talked about breakout clusters and team pods.
For city governments – if you want people in your city centres, the solution is similarly simple: make all public transport free at the point of consumption. Ludicrous? Not really. Over 100 cities around the world have already fully displaced public transport costs onto the taxpayer (including the entire country of Luxembourg), and others like Vienna are offering it for next to nothing. If governments fear the economic damage to cities arising from home working, then they need to put their money where their mouth is; (P.S. doing so will also encourage people out of cars, which has other benefits). To put this into context, would it be worth London funding the operating costs of TfL (~£6bn) to defend London’s ~£500bn GDP? In the face of alternatives, I’d argue, yes it would. But it can’t stop there; we need a massive investment in rolling stock and train capacity. The aspiration should be that every passenger on every rush hour journey has a table and Wi-Fi access, such that they can work productively during their commute. Other countries have substantially delivered this; why can’t we?
And for investors – their role is quite simple and reflects my previous blogs. Keep building high quality, well located schemes, that minimise total commute time and serve up the broader amenity benefits of being in a city. These will distinctly outperform weaker propositions in the coming years, whilst adding value to the lives of workers. These solutions are simple, but importantly targeted at the root at the problem. We need to stop talking about making reception areas nicer and offering nebulous and dubiously deliverable ‘experiences’ and instead get down to the real issues. Principally by ameliorating the detracting factors of commuting time and cost, the advantage that the home delivers over the office will for many workers be equalised out. When combined with the inherent advantages of well-designed offices, this will I believe be enough to encourage workers back into our cities.
© Cushman & Wakefield 2021. This information contained in this briefing is for information purposes only. Accordingly, the information contained herein should not be relied upon or used as for any business decision. Any such decision should be based only on suitable and specific professional advice. This briefing is not directed to, or intended for distribution or use in, any jurisdiction where such distribution or use would be prohibited. To the extent permitted by law, Cushman & Wakefield accepts no duty of care and cannot be held responsible or liable for any loss or damages which may be incurred by any person (directly or indirectly) as a consequence of relying or otherwise acting on the information contained in this briefing.