The real cost of your empty office during COVID-19…

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And why utilisation data is the key to your workplace future 

 

By Alex Birch

 

At this point, we all know that COVID has transformed the world of corporate work. 

It’s been six months since white collar office workers around the world began to trade in their morning commute and a decent espresso for zoom meetings in pyjamas with the occasional cute dog or child cameo. 

By April, JLL and others suggest that around 60% of the global corporate workforce had transitioned and was working from home. 

Reports suggest the great WFH test held a positive diagnosis for workers. Of those privileged enough to have been able to keep their job and work from home, over 86% say they’re satisfied working from home and a large majority report that they believe they do their work as effectively remotely as in the workplace.

Is working from home here to stay? 

Big tech seems to think so. With Google and Facebook recently telling employees that most of them could continue to work from home until the end of the year and Atlassian and Twitter going one step further to announce permanent remote working policies. 

But it’s not just big tech.

BCG’s recent Workplace of the Future employer survey found that companies expect about 40% of their employees to follow a remote-working model in the future. 

As the dust begins to settle on COVID-19 lockdowns in major cities around the world, many are considering the implications of these cataclysmic workplace shifts for both CBD economies and the global commercial real estate industry at large. The stakes are high after all, with commercial real estate worth around $US3 trillion per annum or 13% of GDP in the USA alone. 

These are huge questions being tackled by leading economists and real estate experts but it’s likely to take years before the full picture of long term impacts and outcomes for both office workers and the commercial real estate industry is understood. 

So, where does that leave the workplace experience and corporate property teams of today? 

To be perfectly honest, in a tight spot. These teams need to help their companies weather the COVID-induced global recession by both reducing costs and maintaining productivity in uncertain times. 

A hybrid model where workers combine remote and onsite work has emerged as the preferred workplace re-entry strategy for many. And it’s no surprise. Under a hybrid model, workers can reap the productivity and work life balance benefits from working from home 1-3 days per week, while also maintaining the social benefits of working alongside colleagues in an office. 

Global Workplace Analytics (GWA) President Kate Lister, said, “Our best estimate is that 25-30% of the workforce will be working-from-home multiple days a week by the end of 2021.”

This staggering shift towards long term flexible working presents both challenges and opportunities for companies who are now in a position to reimagine the employee experience and to create conditions that allow employees to thrive in the workplace of the future. 

Importantly, this workplace of the future is likely to be far less centralised around an office tower in the CBD. 

But empty offices do matter.

So far we’ve been looking at the impact of COVID-19 and remote working practices on the number one asset in most businesses, their people. But what about the second largest asset on most company’s books? Their physical workplace or corporate property. 

In a global downturn, real estate and business leaders are going to have to stare hard at the financial implications of maintaining large office environments that are only 30-50% utilised. 

What does 30% utilisation even look like from a hard cost perspective? 

Here’s where it’s helpful to do a little modelling using industry averages. There are 2 standard ways of measuring utilisation from a high level perspective. 

1. You can use sqm as the measure

2. Or use workpoint cost as the measure.

Here are two pretty illuminating scenarios in AUD: 


Understanding the cost of 30% office utilisation during COVID

 

In either scenario, that’s an eye-watering amount of value being left on the table. For a 20,000 seat organisation – $182 million will be spent on empty office space. Every year.

So is this the end of the corporate office tower?

Hardly.

While office vacancy rates are on the rise and Gartner is predicting firms could save as much as 30% in real estate costs if they partner with landlords on strategic subleasing, I just don’t see this as the end of the corporate HQ or office tower. 

You’re not going to see a big bank give up naming rights on its corporate HQ or break too many 10 year leases. 

Not just because of the flow-on impact to balance sheets but because the workplace is as much of an expression of a business as its people. It embodies an organisation’s brand, culture and facilitates the social connectivity of its people. 

In that respect, even though property teams are likely going to look to shed some cost, the real work is going to be developing new hybrid working models that enable people  to move seamlessly between onsite and remote work, as well as thinking about the appropriate physical space—both size and shape—for the new hybrid office of the future. 

I anticipate this transition to the hybrid office, incorporating new satellite spaces and re-designed corporate HQ’s will take anywhere from 1-3 years and will be a major priority for both workplace experience and property teams.

First things first though. Getting people back into offices. 

While the timeline for getting everyone back into offices varies wildly between regions, industries and individual firms, what we do know is that the majority of businesses (87%) from all regions are pursuing phased re-entry strategies, only bringing back workers to offices who are deemed essential to be co-located in an office environment. 

  • As at mid-May, APAC respondents to a JLL survey were planning for more than 40% of their workforce to return to the workplace.

  • In EMEA, approximately half of organisations are planning for 20-29% to return while the other half are unsure.

  • And across in the America’s there’s a growing split between some organisations (29%) who anticipate bringing back 20-29% of their workforce to offices – in line with other regions, and some organisations (17%) who are planning for more than 40% of their workforce to return. 

When they do return, these are the top 5 five following workplace space and safety measures they’ll be looking to implement:

  • 94% Social distancing floor plan

  • 87% Phased re-entry

  • 86% Increased/modified cleaning schedule

  • 83% Increased access to sanitation products

  • 54% Temperature checks 

It’s obvious that the mid-pandemic office needs to be COVID-safe with increased cleaning, distanced workpoints, smart desk booking and sensor-based alerts for social distance breaches

But, it will also eventually need its spaces re-designed to adapt the new way people will want to work when they do come into the office. 

  • Will more collaboration spaces be required over traditional workspaces?

  • Will there be dedicated spaces for meetings with external guests and partners?

  • Will that one dev team need to give up their pingpong table?

The great utilisation data gap

For me, these questions are where the rubber hits the road. We just don’t have the data on the most productive and effective work spaces for newly hybrid-located corporate teams. This is not least because people are only just starting to return to offices but because most businesses are just starting their journey when it comes to measuring office space utilisation. 

In 2019, only 62% of companies were gathering any kind of utilisation data at all. And even then, they were relying on time-consuming and biased observational surveys counting people at seats on a given day or outdated, inaccurate technologies like Wifi or badge tagging which can count some devices or people in a given space but can’t tell you how they’re actually using the space

I’m a little biased here given that my co-founder and I have invested 4+years of our lives designing and engineering what we believe to be the world’s most advanced AI sensor for workplace utilisation and analytics but there’s no denying that there is a tangible data gap that workplace teams are going to need to navigate in order to both re-configure their spaces for this new world of work and effectively right-size their office/ real estate footprint into the future. 

It’s just never been more important to understand how your space is actually being used. 

Having worked in and around real estate and workplace technology for going on 15 years’, I know people have been talking about the importance of the data-driven office for what feels like years but whether it’s for COVID-safety, post-pandemic workplace experience or long term real estate profitability, I really believe that the time to act is now. 

It’s not just about the potential for saving millions on accurately right-sized commercial real-estate footprints but about the employee up-side of getting your hybrid space redesign RIGHT. It’s about using data to deliver on the promise of the post-pandemic workplace for your number one business asset, your people. 

At XY Sense, we are currently working with a number of organisations to install utilisation sensors before teams commence larger scale office re-entries so that workplace experience and property teams have the opportunity to collect accurate re-entry and post-pandemic space utilisation data to enable them measure before they act on hybrid workplace re-design or real estate downsizing.

We believe in the value of collecting data on your new-normal so much, we’re actually offering a 6-month free subscription to the XY Sense platform for customers who sign-up in the next couple of months. 

Just as data has played a key role in helping us battle the spread of the virus, my team and I are working to help workplace experience and property teams navigate this new strategic terrain and create not just ‘safe post-pandemic offices’ but the real workplaces of the future. 

Check out our technology page to learn more about our work – or feel free to hit me up directly if you want to discuss your own situation. 

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