Monday was supposed to mark another milestone for Apple in its effort to bring workers back to the office. The plan — which called for Mondays, Tuesdays and Thursdays to be mandatory days in the office —was scrapped once again as Covid infections tick upward. Apple’s fixed schedule had been met with widespread opposition by its workers and was cited as the reason for at least one high-profile executive departure. Ian Goodfellow, Apple’s director of machine learning, announced his resignation in early May, and is reported to be heading to DeepMind, an Alphabet unit. For now, Apple is sticking with its pilot program, which calls for workers to be in the office two days a week. Before the pandemic, about 22% of private-sector employers offered workers some ability to do their job remotely, according to 2019 data from the U.S. Bureau of Labor Statistics. But the pandemic accelerated the trend, and about 40% of employers currently offer some ability to telework. In February , BLS released the results of a survey of 82,000 private-sector employers that showed slightly more than a third expanded remote-work options during the pandemic for some or all of their workers. About 60% of those companies told BLS they planned to keep the new policies in place. Workers largely favor the flexibility that comes with remote work. While working from home, they can take a break to walk a dog or squeeze in a load of laundry. The lack of a commute provides more time at home with family or for exercise. Outside the distractions of a busy office, some find it easier to concentrate on solitary tasks. But companies are concerned that remote work is making it difficult to build a corporate culture and is stifling innovation. To counter these effects, businesses are looking at ways technology and design can bring people together to collaborate and build connections. Key takeaways for investors Workers are prizing flexibility in where, when and how they work. Companies that offer workers more freedom will have access to the largest pool of employees. Those that place greater restrictions on employees may need to offer higher compensation to attract talent. Office REIT stocks are trading at a discount due to the perception that companies won’t need as much office space as they once did. While this is true, some popular styles of hybrid work may not result in companies downsizing their space as much as some expected. Expect a boom in offices redesigning space to better accommodate a hybrid workforce The need for new tools tailored to a hybrid workforce will drive tech innovation. Some of the tools we associate with remote work, like Zoom calls, are not highly suited for collaboration. “If you think about it, for the first time, the office has competition in working at home,” said Mark Ein, chairman of security firm Kastle Systems, which monitors access swipes at the 2,600 buildings in its network. Right now, office occupancy sits at about 43.4%, based on Kastle’s 10-city average. Within that figure there is some variation. Cities like Austin, Texas, have higher occupancy rates, and certain industries, like tech, have lagged others, like finance, in bringing workers back. Some age groups have a greater desire to be in the workplace as well. This includes new graduates, who are looking to the workplace to help establish their social connections and develop a professional network, according to Micah Remley, CEO of Robin, which has designed apps to assist companies in managing hybrid workplaces. “They don’t want to sit in an apartment for 10 hours a day and work five days a week,” Remley said. ‘Early growing pains’ This may not be where companies thought they would be this far into the pandemic. An extremely tight labor market, where unemployment hovers around a 50-year low, and multiple waves of Covid infections have made it difficult for companies to push ahead with plans to resume pre-pandemic work patterns. In recent days, companies like the New York Times and Capital One have once again paused their plans to return to the office. Brian Kropp, chief of research for Gartner’s HR practice, expects it will take several years for companies to fully understand how to make a hybrid environment work. What companies are seeing right now are the “early growing pains,” he said. Kropp says bigger questions of how to manage employee career paths, performance management and broader workforce planning, are still left to be sorted out. A lot of attention is being paid to office design. In the distant past, offices were a place you had to be because the tools to do your job were there. For example, a computer mainframe. That often doesn’t exist anymore. Instead, companies need to give workers new reasons to be there. “Business leaders are thinking about how do I make the office a place that people are going to want to come to,” Ein said. He explained that companies are focusing on ways to make office space more inviting, and delivering on social components, like lunches and happy hours. Fixing a broken workplace Even before the pandemic, people were beginning to migrate away from the office, said Janet Pogue McLaurin, an architect and global leader of Gensler’s Work Sector practices and research initiatives. At the most innovative companies, people were working at the office about 67% of the time by the end of 2019, she said. Also, workplace effectiveness was on the decline pre-pandemic, according to studies Gensler conducted. Notably, this was a first since Gensler began this measurement. “So something was broken,” she said. “We knew it was time for a change … So this is an opportunity not just to fix where it was, but to actually envision something very, very new and very different. And I think companies are seizing that.” What workers are now asking for is maximum flexibility, according to Kropp. Within this framework, companies have access to the broadest pool of workers, but it is a challenge for managers. “If you have a really strong set of managers, then push for more radical flexibility,” he said. “If you are taking away flexibility from employees, you’re going to have to either get comfortable with the idea that you’re going to have access to a smaller percentage of the labor market, or you’re going to have to make up for that loss of flexibility — most likely with just more compensation,” Kropp said. There’s also a need to be fair to all employees, including compensating those who cannot work remotely due to the nature of their work. Bhushan Sethi, global leader of people and organization at PwC, said he is seeing a lot of companies investing in leadership training because being a manager in a hybrid environment requires new skills. “The role of the manager … is so important,” Sethi said. “You drive experence. … If you don’t provide them with the right experience, they’ll leave — or just as bad, they won’t be as productive and engaged.” It’s also important to keep in mind that the top reason people want to go back to the office is for collaboration with their co-workers, but office spaces might not be set up to facilitate that, and the technology may be lagging as well. Although most knowledge workers have gotten used to working on Zoom or Microsoft Teams, those tools are designed for one-way or one-to-many communication, not collaboration. “There are all sorts of new technologies that have gotten VC funding that are bubbling up that are starting to make progress, but are really not even there yet,” said Kropp. As an example, he cited a type of technology that would allow remote workers to find where their colleagues are in the office and virtually pop in on them to have a conversation. Or technology that could track people’s facial expressions to sense when a worker might be struggling and need a check in by a manager. He also anticipates new developments that will make it easier for managers to measure and evaluate a person’s ability to do their job. Robin’s business originated as a conference room scheduling app. Offices were packed, Remley said. Its business has evolved into helping companies get the most intensity out of a space as people decide when to come into the office. For a hybrid employee, the decision to come into the office is likely the most expensive decision they make that day, Remley said. The app assists workers in knowing who will be in the office, so employees can make the most of their decision to come into the office. Not the death knell for offices Office space needs are declining, but not as much as one might expect — and not across the board. In a research note published on May 10, Morgan Stanley estimated demand for office space would decline by 14% over the next three years as work from home and shared desk use continues to accelerate. Its opinion is drawn in part from its latest AlphaWise survey, which polled 100 U.S. companies in March and showed that hybrid work is here to stay. According to its findings, work from home penetration will double to more than 40%, and the new normal for desk utilization is about 60%, compared with about 80% prior to Covid. Morgan Stanley analysts, including real estate industry analyst Ronald Kamdem, wrote that office REITs are trading at a widening discount to other types of real estate investment trusts for this reason, and the findings support the firm’s underweight ratings on Vornado , Hudson Pacific Properties and Office Properties Income Trust . All three stocks are trading at or near 52-week lows. Gartner’s Kropp expects some companies that are pushing a hybrid-first strategy will be able to decrease the size of their office footprint, but companies that are pushing ahead in a more conventional “office culture” will not. Some experts suggest that companies shouldn’t be looking to slash their office space. Instead, they need to think about reconfiguring the space to better meet their workforce’s needs now and into the future. First, workers are prizing flexibility, and that means coming into the office at the times that make the most sense to them. That may have been one reason why Apple workers bristled at the idea of being told to be in the office on three very specific days. Studies of current worker patterns consistently show that Tuesday, Wednesday and Thursday are the most popular days for U.S. workers to be in the office. In employee surveys, workers often say they want to be in the office on the same days that others are, which makes it difficult to automatically assume companies will need less space in a hybrid scenario. “One thing that we’re finding is that the top performing companies are actually three times more likely to be increasing their footprint than those that aren’t,” said Gensler’s Pogue McLaurin. The trend reflects not only that the top performing companies are still growing and hiring — and did so throughout the pandemic — but also that these companies want to make sure that they are getting teams together in the best possible way. “How do you want culture to get reinforced and innovation to really flourish?” she said. “And I think some of the best companies are not thinking in terms of how do we minimize how much square footage we have, and have different people come in on different days, but how do we actually strengthen the weak ties.” To build social capital and provide mentoring and coaching, these companies are often encouraging staff to be in the office on the same day, even if that’s just once a week. Pogue McLaurin said she expects to see a lot of experimentation by companies over the next few years. Some of that has already begun, but more will occur over time. “Our work patterns have not … gotten fully established yet,” she said. “We’re in this in between.” Armstrong World Industries has turned a portion of its Lancaster, Pennsylvania, campus into a laboratory where ideas and products — including some it manufactures — can be tested and evaluated by Armstrong’s staff as they go through their daily tasks. Working with Gensler, Armstrong is testing systems that provide cleaner air and designs that provide more natural light. Nature also is incorporated into the style of the office, which includes hanging plants, wood tones and earthy colors. Wilderness retreats and activating the outdoors According to Pogue McLaurin, there is an increased desire to pull in more fresh air into offices or to better equip outdoor spaces like rooftop terraces. Another trend is mid-door spaces, which are interior spaces that can be opened up to the outside to invite fresh air inside. By experimenting, designers hope to learn how to create spaces that encourage spontaneous interactions between colleagues. They may analyze the different types of meetings people have in order to maximize the use of the space for these events. For example, how do you set up a conference room, if you know that a certain portion of the participants will be on-site and another portion will be participating via video conference? It may also turn out that the model of having employees handle the bulk of their job in large open spaces filled with desks and then duck into enclosed conference rooms for collaborative sessions is outdated. In the future, maybe that’s flipped around. Instead, there are private workspaces with large open areas where collaboration gets done. Sanjay Rishi, CEO of Work Dynamics, Americas, at real estate services firm JLL, said that even though much of the conversation about going back to the office focuses on collaboration, companies need to have both “we” spaces and “me” spaces. He explained that after two years of working from home, employees have built time in their days to take a breather, and they will need this ability at the office as well. “From a design standpoint, home is influencing how offices will be designed, how the seating will be, the comfort,” said Rishi. Younger workers also have a preference for using so-called third places for meetings. This could include a coffee shop or having a meeting while walking or sitting on a bench in a park. Salesforce has put this idea on steroids. Earlier this year, it booked Trailblazer Ranch , a 75-acre retreat in Scotts Valley, California. There its staff can get together for meetings and leadership training, but also build connections, while bonding over activities such as yoga and hiking. “These are all spaces that were previously never thought of as office spaces, and now we’re starting to think about activating all that,” said Pogue McLaurin. At Adobe , the hope is that people don’t just sit at their desk all day, but get up and move around the space. “A lot of what we focus on that helps drive innovation and creativity are these casual collisions of when people come in,” said Eric Kline, director of global workplace experience. Adobe looks at the way different elements of its workplace interact with each other. It likes to think about different zones as “neighborhoods” forming a broader community. “So you also don’t want someone to come in and just stay in one place all day because part of what makes a company great is how the employees actually intereact with each other,” Kline said.
