Many CEOs are coming to the same long-term conclution about the future of work—in the age of the novel coronavirus, real estate is not worth the expense.
In the tech hubs of Silicon Valley, Seattle, New York, and Toronto, many CEOs are beginning to make long-term decisions about the future of work. Start-ups on the brink of success are letting leases end or looking for ways to get out of long-term deals, while more established companies are closing facilities, consolidating space, and looking at more flexible options for employees.
In May, the world’s largest commercial real estate services company CBRE predicted a 7% drop in office rents per square foot from the first quarter to the fourth quarter of 2020. It also expected vacancy rates to rise as high as 14.9% in the first quarter of 2021, up from 12.3% in the first three months of this year. Since then, however, the number of COVID-19 infections in the U.S. has spiked yet again, throwing the short-term future even further into doubt.
Facebook, Twitter, Okta, and Box are among the tech companies that have said they will permanently shift their workspace arrangements to a hybrid approach, or distributed model. Others will surely follow, especially after government officials in Los Angeles and California announced Monday that when schools reopen in the fall, classes will be online-only.
With no vaccine for COVID-19 likely to be available anytime soon, workers who can be productive at home are showing little desire to go back to the office, and in parts of the country where lockdowns are being reimplemented they will simply have no choice.
WeWork Chairman Marcelo Claure told the Financial Times recently that the company’s clients are seeking more flexibility and turning to the office-share provider for space. He highlighted that Mastercard, Microsoft, and Citigroup have all signed new leases in the past month. Claure said that although revenue was “flat during the crisis,” WeWork is now poised to start generating positive cash flow next year, ahead of schedule.
Jamie Hodari, the CEO of one of WeWork’s leading rivals, Industrious, has said his company is seeing a similar trend, with clients including Salesforce, Pivotal, and ServiceNow moving to a more distributed model. Hodari claimed the percentage of companies deciding not to renew their memberships spiked in early April, but is now back to pre-COVID levels. Over the last couple months, Industrious has started working with clients on an even more flexible model that would allow companies to rent fractional space and pay based on usage.
The world has already changed as a result of COVID-19, and the way we work is no exception. Players like WeWork and Industrious will need to be increasingly flexible to remain competitive, while the concept of remote work will perhaps be one of the longest standing features of the “new normal.”