Published April, 2020
It is undoubtedly the case that work will change after COVID, and highly likely that workers who become accustomed to the flexibility of working from home will wish to maintain that flexibility. It is also highly likely that CFO’s around the country will want to continue to reduce costs! However it is the thesis of this paper that the translation of these two desires into a significant reduction in office demand is limited by the fundamental nature of employee demographics and the nature of office leasing. To summarize the points in the paper:
1. High-status employees (executives and senior managers) have already had flexibility to work from home, and have been doing so since the 1990s. Their WFH will only change demand going forward when these employees give up their workspace permanently, which executives are unlikely to do for a variety of reasons.
2. Administrative and clerical employees, particularly those that are database connected, have already been consigned to WFH in large measure for cost avoidance and productivity reasons, a change again that happened in the late 90s and early 2000s. These employees also, in general, take up the smallest amount of space in the organization and therefore have the smallest impact on demand when shifted.
3. This leaves “professional staff” as the greatest opportunity for demand reduction. These creative professionals, staff attorneys, programmers, and scientists are the group that stands to gain flexibility in where they work. However, this will only result in a significant reduction in demand if these employees either (as above) give up their workplaces permanently, or if they adopt hot-desking or hoteling arrangements for their space. While this is possible, many countervailing forces will work against changing the fundamental interaction between these (extremely mission-critical) employees and their workspace.
4. Even if the major shifts described in 1. or 3. occur, these changes can only affect office demand if organizations a) wait until lease expiration or b) sublease their space and relocate to smaller space. The decision to sublease is heavily influenced by transaction costs, which impose a lower bound on the decision. Both of these choices will be phased over a significant time horizon, thereby lessening any impact on demand in the immediate aftermath of the crisis.
5. Finally, there are emerging countervailing trends that must be considered post-COVID. These include an increase in space standards that might follow from social distancing (and a possible health concern around hot-desked space) as well as a possible reduction in demand for co-working spaces, which have the highest density of any office use.
This paper acknowledges the fundamental nature of the shift likely to be seen in workplace behavior post-COVID, but describes the mis-match between a future increase in the percentage of days working from home and the percentage of demand reduction that results. This projection is made with one important caveat, which is that a fundamental shift to hoteling (“no fixed address”) would change the game dramatically, since a workforce without a designated space could compress more completely than one in which employees retain some fixed accommodation. In the author’s opinion, such a shift is extremely unlikely given human nature and the many unsuccessful attempts to make hoteling work. This paper sub-divides the workforce into categories based on Bureau of Labor Statistics, and attempts to make assumptions about how much space each group occupies, and what are the likely consequences on space use of increased working from home. The approach is probabilistic, with distributions estimated around key parameters, and the model employs Monte Carlo methods to evaluate probable outcomes. The model’s output suggests that reasonable expectations in increased working from home might result in demand reduction of 4-6%, which although extremely significant is far below some of the apocalyptic predictions being made by academics and the business press.
Here is the full paper: DemandAndRemoteWork_2020-04.pdf
