During the Great Recession, unemployment was particularly bad because many companies permanently reduced headcounts in some roles. Technology had made certain tasks (like legal research at law firms) much more efficient, but it was only under duress that companies finally took full advantage of the new reality.
Business doesn’t necessarily react to technology in a linear way. It’s easy to overlook dead weight when the numbers are all trending in the right direction, but the pressure of a downturn tends to clarify things. So, what will change in the next recession?
My pick for an upcoming business disrupter is remote work. Only in the past cycle has this really become feasible for the average white collar employee. Many of the best remote work tools didn’t exist in 2008. Before Dropbox and its competitors, there was Remote Desktop and VPNs…both painfully slow and bug-prone. Smartphones barely existed. High-speed internet was not ubiquitous. Proprietary software generally lived on office desktops rather than in the cloud. Video conferencing was buggy and low resolution, whereas virtual meeting technology is excellent now. The list could go on.
None of that is news, and everyone has noticed the growth of remote work. But I don’t think that the full implications of these technologies have really dawned on the average employer. Sure, some people get to work from home on Fridays, and some part-timers barely show their faces in the office. And there are some companies, particularly tech companies, that have large numbers of employees working from home. But the average company hasn’t adjusted its MO too much.
That could change when they’re under financial pressure and need to cut costs. Even partly remote work will allow smaller, cheaper office footprints, and fully remote workers could be paid less if they work in lower COL regions.
In articles about Coronavirus, the theme of remote work comes up repeatedly. People stuck in quarantine for weeks are just working from home without much difficulty. In China, entire school systems have shut down and students have been attending classes online. It's really pretty easy to do now. This could end up being a proof of concept for larger-scale remote work.
I know the arguments against it: the loss of water cooler talk, random interactions, networking, and camaraderie. Clearly offices aren’t going anywhere. But the benefits of these things and the costs of commuting vary by person, and even a marginal change will substantially affect CRE.
An increase in remote work is likely to have at least two effects:
First, office space demand will decline, or at least increase at a slower rate. Companies won’t need any space for totally remote employees. The rise of partly remote workers will generate compact open offices and “hoteling”, as employers notice empty desks and try to save on rent. This could create a vicious cycle that accelerates the trend: since many employees hate these office layouts, they’ll work at home more, leading to more empty seats, leading to further office redesigns…
Second, residential development will shift somewhat towards the outer tiers of suburbia, as many employees who wouldn’t tolerate three hours of commuting per day will tolerate it twice per week. The trend could increase as fewer days of commuting per week means fewer cars on the road and less congestion, and therefore easier commuting from the cheaper suburban fringe. The shift will likely be strongest in coastal cities with high real estate prices.
Good post. It's about time someone brought this up.
Personally, I think remote work is extremely overrated and don't see it catching on as much as the rest of the world thinks it will. Do it sometimes for my current gig and while the flexibility is nice, I have trouble getting shit done at home and don't love posting up at Starbucks or the library. Too many distractions + no bosses and peers looking at my computer screen + my dogs bark and want attention + I can beat off whenever I want, etc. = entire day gone and I've done like a half hour of work. Need an actual office to put me in work mode and I know I'm not the only one who feels this way.
I'd be cool with doing it one day a week as long as I still had my own assigned space at the office. Fuck that desk-sharing bullshit.
Despite many people having declared for years that remote work is going to disrupt commercial office, most Fortune-500 type companies of the world are actually dialing backtheir work from home policies after seeing noticeable losses in employee productivity.
Although there is some bad press swirling around the bigger co-working companies out there, I do think that the co-working concept has fundamentally changed the office landscape as a whol. Even in buildings with traditional leases in place, landlords are being pushed to do more and more to make their buildings desirable places to spend time/fun by amenitizing common areas, bringing in creative food and beverage options, hosting events for tenants, etc. I expect this trend to continue, with landlords/buildings being evaluated based upon on the suite of services offered just as much as they are on the quality of their space.
As far as the remote work concept goes, I don't see demand for office space in Tier 1 and Tier 2 cities going anywhere anytime soon.