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Better, Faster, Cheaper: Does this Apply to Office Real Estate?

by Brian Bankert / October 29, 2021

If anything typifies the business world in the late 20th and early 21st centuries, it’s the phrase “Better, Faster, Cheaper” and the continuous drive to achieve at least one of the three. I would argue that the main pillar of the three has been cheaper.

The move from pensions to 401(k)s, the shrinking size in terms of pages of newspapers and magazines, and the falling quality of clothing fabric in the average pair of shorts are all examples of designing a cheaper product or good. Whether or not these moves create a better product, the underlying theme is a relentless push to control costs while maintaining a minimum amount of quality that is acceptable to consumers.

One area of the economy that has resisted a sustained push for “cheaper” is office costs. Yes, businesses regularly perform due diligence to control office rental/construction costs and occasionally relocate to the city, a neighboring county, or even another state. But firms do not usually downsize in terms of office space class or local neighborhood to aggressively control costs. Alternatively, firms in certain industries, such as technology, tend to over-invest in office space. Stylishly designed offices and lavish amenities tempt highly compensated employees to never leave the cocoon of the office except possibly to sleep.

The COVID pandemic could change that forever.

Once the initial rush to stand up the virtual workforce was over, businesses realized it was possible to run successfully for not just a few months but much, much longer. Workers who had the wherewithal to work remotely in more attractive locales discovered that living near or even in the same state or country as the office was no longer necessary.

But now businesses are starting to ask their workers to return to the office. And many workers don’t want to go back.

This change in mindset coupled with a tight labor market could have a domino effect on office space for years to come. Some workers will adamantly lobby for working completely or most of the week from home - wherever that might be - post-pandemic. They may even make it a “deal breaker” and leverage the tight labor market by threatening to leave. Employers may initially balk, but will likely cave if those workers are key producers in their workforce. And as more employees work remotely some or most of the week, those “left behind” will have a less vibrant in-office workspace causing them to rethink coming into the office.

Depending on the industry and how feasible it is for the work to be conducted at home, it could be entirely reasonable for 20% to 60% of the workforce to be absent from the office on any given day of the traditional five-day work week. If planned accordingly, this could result in businesses requiring considerably less square footage in the future.

Obviously, not all businesses can or will go down this path. Numerous businesses cannot shift to remote work for even a portion of their workforce, mostly those in industries that interact with the public, such as retail, restaurants, and entertainment. Many office spaces are locked in by long rental leases, and many companies own their own buildings and therefore cannot simply downsize (although they may be able to sublet or sell their space). Furthermore, not all work can be done remotely, even within industries that can make the shift seamlessly (e.g., someone has to make sure the company networks and desktops are working for the VPNs to function).

Growing companies that routinely hire new workers may want to delay offering new hires the ability to work remotely until they are properly trained and onboarded. And the truth is - there will always be some managers and firms that want an in-office presence to assuage concerns about productivity and company culture.

To help navigate the post-pandemic environment, I suggest that both employees and employers take the following three perspectives/actions:

  1. Be reflective – What did you like about working remotely? What do you miss about the office? Is there a balance that can be achieved?
  2. Be patient – Everyone is trying to figure out what this new world will look like.
  3. Be honest – Communicate what you need to be optimally productive and also what works for your family. Even after 18 months of the pandemic, we are not fully back to normal and may not be for some time.

Realistically, for a major shift to remote work to really take hold, there have to be benefits for both employers and employees. That’s where office costs come in. If, over time, employers can save materially on office costs by having a lower in-office footprint, they’ll be more likely to make remote work permanent regardless of the labor market. Employers will find a way to maintain productivity with lower office costs and employees will find a way to stay productive while reducing their commuting and housing costs.

That’s a win-win and a good example of Better, Faster, Cheaper.


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Tags: Hybrid Office

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Brian Bankert

Brian Bankert

Brian Bankert is a Senior Statistician at Fentress Incorporated with over 20 years of experience supporting the government consulting, health care and financial services industries. He specializes in econometrics and data science and enjoys traveling, visiting art museums, playing trivia and spending time with his daughter.