Earlier in the coronavirus pandemic, I speculated:
Think about it. If you're a business that until now has rented, say, a couple of floors in an office building to house your administrative functions, but you now learn to do the same job with most of your admin workers telecommuting from home . . . why go back to renting that space? Why not continue to have them work from home, and save tens or hundreds of thousands of dollars in rental every year? It's a no-brainer. Landlords should already be factoring that into their considerations for the future - and getting concerned.
Looks like I'm far from alone in thinking about that. The BBC reports:
Having thousands of bank workers in big, expensive city offices "may be a thing of the past", Barclays boss Jes Staley has said.
About 70,000 of Barclays' staff worldwide are working from home due to coronavirus lockdown measures.
This had led to a rethink of the bank's long term "location strategy", Mr Staley said.
. . .
In recent years, banks worldwide have shifted staff away from expensive skyscrapers in financial hubs, but Barclays and its rivals still have busy offices in places such as London's Canary Wharf.
But Mr Staley said his bank was re-evaluating how much office space it needed, as it was now being run by staff working "from their kitchens".
He added that in the future retail branches could be used by investment banking and call centre workers, hinting at an end to long commutes for some workers.
"There will be a long-term adjustment to our location strategy," Mr Staley told reporters. "The notion of putting 7,000 people in the building may be a thing of the past."
There's more at the link.
The implications of such a decision, spread across thousands of companies currently taking up office space in cities' central business districts (CBD's), are staggering. Consider:
- What about the transport infrastructure that's been built up to ferry people in to work and back home again? Railways, buses, even the roads themselves - what if the historical network suddenly falls to a much lower level of use or occupancy? Budgets will have to be adjusted, plans for expansion curtailed, vehicles and rolling stock mothballed, staff laid off. I don't think anyone's looking at that yet.
- What about businesses created to support businesses in the CBD? Cafes, restaurants, food carts, dry-cleaning outlets, gift shops - there are thousands of businesses set up to cater to and for office workers. If those workers aren't there in the numbers they were before, what's going to happen to those businesses?
- The biggest losers in the business world may be landlords. Hugely expensive office buildings may become financial millstones around their necks. (For example, One World Trade Center cost almost $4 billion to construct.) Loans to build more such buildings may dry up altogether if banks can't be sure of a return on so large an investment. Rents will probably have to be drastically reduced in an effort to persuade tenants to remain, and/or to persuade tenants to move from one landlord's premises to another's. Competition to sell office space might become much more cut-throat than has been normal up to now.
- Cities will be faced with a massive reduction in rates and taxes from a shrinking CBD. How will they make up for the shortfall? What about the money they've spent to build up a transport network to support the CBD? Many such networks have "featherbedded" contracts with trades unions. If demand for their services falls, can the city lay off workers, or is it contractually obliged to keep them, at vast expense? What will the unions have to say about it?
All these are questions that will have to be answered, and soon. Frankly, once companies see how much money they can save by having employees work from home, I can't see them keeping up such large offices any longer than they have to. They can always bring in staff once a week to smaller premises, staggering work days so that a central office receives, say, one-fifth of the employees and/or corporate divisions every day to brief them on developments, ensure everyone's working to the same script, and do the necessary administrative work. Even one day a week may prove to be more than is necessary in the long run. How will companies reorganize their operations and structure to take advantage of the "new normal"?
This will bear careful watching. I think it's going to affect a great many white-collar workers before long.
Peter
12 comments:
My bank has one brick and mortar office but has customers nationwide. It is also one of the highest rated banks by it's customers. It is full service offering everything from vehicle and home insurance while giving rebates on ATM fees while paying interest on traditional bank accounts.
My wife hangs onto a local credit unit where she pays over $180 in fees every year where she doesn't get near the service I get at USAA.
The (start of relative) decentralization will, perhaps after a few well-publicized disasters) lead to calls to better encryption to protect business, and if you need it protect business, why NOT the individual? Also, communications (network) redundancy. Downtime isn't just potentially deadly, it costs MONEY... (see: James Burke in one the original Connections episodes).
It won't be entirely "free" to move employees to their home office, but pretty darn close, given the savings in rent, etc. for maintaining lts of centrally-located office space.
One problem will be "managers" who need to see "fannies in chairs" to make sure their employees are working. The real issue is: what is the mission of the company and my department in it, and do I have the metrics to show my employees are working? As for meetings - what I call "work interruptions" - they can be handled via video chat.
An old rule is getting 5-6 hours of productive work out of an 8-hour workday is what's expected; that's easy to do working from home, and easily esceeded by increased productivity. Way back when, I designed some systems for a client that allowed operating a call/customer support center 24X7, with the client paying for a high speed data connection, a basic PC, telephony over the data line and flexible working schedules. There were employees, and prospective employees, anxious to work outide the standard 8-5 paradigm, especially working part-time. We set up a few employees who had temporary medical issues that made daily travel difficult and it worked great. One routinely logged on about 4 AM and got more data work done by 8 than regular employees did between 8 and 5. Another took care of her ill child during the day and worked from 6 PM to about 1 AM after her husband got home and had similar productivity. Unfortunately, "management" couldn't get its head around the idea of not "seeing fannies in chairs."
All of the local TV stations in my area have anchors and some reporters, even the weather people, working from home during the "Coronavirus Crisis" and it's seamless. Well over a decade ago the jurisdiction where I worked (I did IT for the Sheriff's Office for several years) established video IA (Initial Appearance, fancy name for a post-arrest bail hearing) where, instead of a full courtroom at the jail, the "IA courtroom" was a 15X15 room adjacent to Central Booking with a camera and large monitor and the "duty judge" did the judicial stuff from home (still needed a clerk on site, but 2 court clerks were at the jail 24X7X365 anyway for arrestee processing and case scheduling). Even though it meant midnight work, some judges clamored to do it because it meant they didn't have to drive to the courthouse or the jail. Interestingly, the number of IA sessions increased - 30-60 minutes of IA every 3-4 hours with only a few arrestees instead instead of a herd of them only twice a day at noon and midnight.
The judges doing vid IA all bought the same curtain material and hung it from one wall in their home office so the background was always the same, and all vid sessions were archived on a lawyer-accessible server for lawyers to review anytime. Simple, efficient.
There is increasingly a LOT of "normal business" than can be done anytime, anywhere, and the issue will be "performance." I'd expect some companies will have trouble recruiting workers if they DON'T have work-from-home as the standard.
Central Business Districts have been dying for years, for many reasons, the biggest of which is high costs.
Banks and investment firms have been leaving big cities for years due to high costs; this will accelerate the move. Several companies are keeping headquarters and high end customer service in big cities and moving everything else to cheaper places - like Texas, North Carolina, Tennesee, Nevada. etc.
I'd be curious to see if companies are getting the same productivity when their workers work from home. I know that some people are more productive at home, and some are less - I don't know which way the average goes.
Either way, big cities are losing jobs and population that won't be coming back until they change.
This is something I have considerable experience with.
For 34 years I worked in various business districts in NYC, for over 20 years commuting in from suburban NJ, until a year ago I moved to Pennsylvania and started working remotely full-time. For over 20 years I commuted at least four hours a day.
My suspicion is that the model of having high-priced office space in city centers will decrease, and the demand for smaller office space (including in individual homes) will increase. Of course once you get away from the city homes get bigger for the same price (we sold our NJ home, paid off what we owed on it, moved to a MUCH bigger home and had money left over) so there will be room for a home office. In other instances the demand for small rental office space will increase, for people who don't want or can't accommodate an office in their living space (maybe they have kids and the noise is distracting, for instance).
I'd predict an uptick in demand in suburban areas for small (maybe 100 square foot) secure, furnished office space with internet access, phones etc. Bring in the computer equipment you need, and maybe have a central printer/photocopier/fax that renters can use for a fee. Nothing fancy, just a comfortable place where people can work all day without distraction, close to home.
I think companies will learn the lesson that people can and will work remotely, that they'll be productive (heck I'm more productive because I don't arrive at work already stressed from commuting), and they'll see the benefits of not having to pay for office space.
Mark D
I am currently working from home. I am having the same level of output that I have while sitting in my cubicle. The longer this thing continues, the more I believe my business will consider keeping the staff working from home.
The greenie/lefty (grefty? grifty?) faction will fight the deurbanization. tooth and nail.
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Innocent Bystander said, " I'd expect some companies will have trouble recruiting workers if they DON'T have work-from-home as the standard."
There has to be a number of people who see 'going to work' as the great escape from home life, something they have been doing forever.
1. Have you had a tele-appointment with your physician yet? Beginning last year (or so) I looked upon seeing the PA only, as opposed to the doctor, during an office visit as rather impersonal and downgrading to my status as a patient; now I think of it as "progress?" in the field of medicine.
2. One also has to think of all the poor animals (in the subways and buses and on the streets) who look upon the daily commuter as prey, a source of income and, sometimes, pleasure.
I will believe that this is a permanent trend when residential real estate listings identify the Home Office (HO) facilities built into the structure.
Back when I did a small business, the tax code permitted me to write off a portion of the interest on a mortgage, according to the fraction of square footage, but to qualify, there had to be a close-able door between the 'Home Office' and the rest of the house. I used a spare bedroom for that purpose. What differentiates a HO from a BR? The typical convention is that a room with a closet built in is a bedroom.
So, if the businesses are anticipating that some new hired will start as home-office workers, will there be a tax code carve-out for a home-office allowance?
For current residences, will we see a modification of the 'tiny house' to become an on-site office shed (or two) in the yard?
What about homeschooling or schooling-from-home? Maybe kids K-8 don't need a door that closes, just a School Nook. Students grade 9-B (B for Bachelor's degree) probably need a close-able door, maybe a pocket door.
Just because the businesses have discovered the economies that can occur by not dragging their workers through traffic to a cloth-covered cube in a high-rise, doesn't mean their facilities costs will completely go away. They'll just be outsourced to their employeed, for which there will be a cost, for which there must be an allowance (balanced by the reducing of automotive expenses).
the Trump tax changes eliminated the home office deduction as part of the simplification.
There are advantages to having offices, (face-to-face meetings are better then teleconferences) and advantages to remote work.
It will be interesting to see how things change over time.
I work from home, with a few trips a year to the office.
David Lang
Chicago is a good example of what happens when a city slowly dies.
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