11 minute read
THOUGHT LEADERSHIP
HYBRID WORK
Threat or opportunity?
Social Distancing in the Mission. Jennifer Potter, San Francisco [2020].
Busyness Transcending every sphere of society Blocking quiet and self-reflection Making lists only to check the box An unexamined life emerges And One Day by Judy Jenkins
This think-piece examines the structural shifts occurring in the commercial real estate sector, and to what extent they open new opportunities from a sustainability perspective.
BY LLEWELLYN VAN WYK, B. ARCH; MSC (APPLIED), URBAN ANALYST
As noted in a recent report by the International Monetary Fund (IMF), the Covid-19 crisis hit the commercial real estate (CRE) sector hard and increased uncertainty about the outlook for some of its segments due to possible structural shifts in demand1 .
Covid-19 containment measures affected economic activity causing global commercial property transactions and prices to slump. The IMF believes that several of these impacts on the retail, office and hotel segments may be permanent as certain activities move online while others relocate to new satellite offices at the edge of cities in what some companies refer to as a “more distributed workforce”.
STRUCTURAL TRENDS
The IMF report argues that the pandemic has exacerbated preexisting structural trends in various segments in the market. One of these segments is retail where demand for traditional brick-andmortar trade had been gradually eroding even before the pandemic, as consumers increasingly migrated toward e-commerce.
Similarly, the pandemic may also lead to persistent unfavourable effects on the demand for offices as businesses migrate toward teleworking and adopt more progressive work-from-home policies including the use of online meetings in place of large, in-person
gatherings. Given these factors, the IMF argues that the CRE sector is confronted by challenges in both the near-and longer term which will create a “highly uncertain outlook”.
The Economist argues that the paper-based nature of work – the raison d’etre of the office in the first place – has no ongoing validity. Instead, they argue that the long duration of the office reflects a market failure. Developing this further, The Economist suggests that work requirements may have forced the world into a “bad equilibrium” and that the pandemic presents the opportunity for correction.
THE DOG ATE MY HOMEWORK
Brent Neiman of the University of Chicago presents three factors which prevented the shift to homeworking previously. The first relates to information – bosses simply did not know whether an office was really required or not. Now they do. Secondly, it would be difficult for individual companies to make the transition because it would have placed them out of step with their clients and suppliers. The pandemic forced everyone into the transition. Thirdly, few companies would have been prepared to make the technology investment needed to enable workers to work from home. The pandemic forced that decision on to them.
GLOBAL CRE SECTOR RESPONSES
Return to offices are developing differently in different markets. The first global report looking at the impact of the future of work on real estate and cities over the medium term found that a strong feature of the market will be a focus on flexibility demanded by both workers and corporates2. The Urban Land Institute survey found that real estate professionals overwhelmingly expect increased remote working, including more home working (96%), more remote working away from home (72%), and the greater use of satellite offices at the edge of cities (67%). Of particular interest is their statement that “the resulting ecosystem of workplaces will accelerate a blending of uses between residential, hospitality and office spaces, as well as a shift in language from ‘office’ to ‘workspace’.” From a demand point of view over half of the respondents forecast a decrease in office space needs, with a small percentage envisaging no change (37%). A clear majority (94%) expected an increasing demand for healthy building amenities and for more space for collaborative work (81%).
Employers are also taking different positions on remote workers – Bloomberg in London is reportedly offering its workers a stipend to return to office.
How successful these attempts will be remains uncertain. Working from home seems to suit many white-collar employees, and it is not necessarily fears related to workplace safety that is driving this. As lockdowns have eased people have returned to public places like restaurants. Data suggests that only 50% of people in Britain, Spain, Italy, Germany and France spend every workday in the office while a quarter remain at home full-time. This preference for homeworking is also not new: a paper published in 2017 in the American Economic Review found that workers were willing to accept an 8% pay cut to work from home. One of the drivers for this preference relates to a dislike for commuting – a study done in 2004 found that commuting was one of the respondents’ least enjoyable activities.
UNITED KINGDOM
It is estimated that London’s population may have dropped by 700 000 during the pandemic. A decreasing population lowers demand for a whole range of goods and services. Clearly this raised fears for London’s economy with some commentators suggesting that it could impact on potential GDP growth. There are fears that longer-term remote working trends could prove a bigger threat to the capital. If workers do not return, there will be a knock-on effect on the supply of restaurants, bars, clubs and other service providers.
A report by Bloomberg notes that more than 85% of UK finance workers no longer view the office as their main place of work. The YouGov survey of more than 500 finance executives from across the UK found that just 14% now consider their office their main workplace compared to 42% for the home and 44% for a hybrid arrangement. Despite many companies refashioning their offices and offering financial incentives to workers to return, most workers want to work under a hybrid model.
As Bloomberg notes, hybrid working arrangements are here to stay whether bosses like it or not.
USA
Responses to uncertainty around growing office vacancies caused by the work-from-home trend instigated by Covid-19 varied from the “death of the office” to building a Covid-19 resilient office space.
After the first wave of work-from-home passed in 2021, it was suburban office markets that recovered faster than downtown markets across the US, according to new data. Throughout the pandemic there was much speculation about the future of the downtown office and a suspected increase in interest in suburban offices. This trend has come to fruition, largely on the back of health concerns but also because of shorter commute times and a desire for more living space. It will be interesting to see if this trend continues.
The Urban Land Institute predicted that the pandemic would accelerate the move toward more health-related features in facilities, suggesting that employers would place more emphasis on healthrelated issues over energy savings or aesthetic considerations when considering new office space requirements. In a similar move, the US Green Building Council (USGBC) released four new Safety-First Pilot Credits that outline sustainable best practices aligned with public health and industry guidelines relating to cleaning and disinfecting, workplace re-occupancy as well as HVAC and plumbing operations.
One of the first office buildings in the US to be engineered for Covid-19 resilience was a Chicago office building under construction at the time of the outbreak. Design strategies aimed at maximum social distancing, touch-free operation as well as air and surface sanitisation. The owners anticipated a move away from large floorplate buildings filled with multiple companies on each floor sharing bathrooms, corridors and public areas.
ASIA
Unlike major cities in the US and other western cities, workers in some of Asia’s largest cities such as Hong Kong and Singapore are returning to office in droves. Western city leaders should take note of the reason: the ample presence of public transportation, making office commute times dramatically lower than in many western cities. A less savoury reason is that more than a quarter of Asian businesses would not permit remote working anyway3 .
SOUTH AFRICA
All indications are that the South African CRE sector is not immune from changes to the workplace. Over half of respondents to a poll conducted by BusinessTech in June 2022 indicated that they are still working from home.
In an article appropriately titled “Big shift coming for South Africa’s richest square mile as more people work from home”, the writer points to the conversion of Barlow Park into a megacity with 4 100 residential units. The development is cited to include an urban forest, a business centre, a 5 500m2 retail space, a medical centre, a recreation centre, restaurants and a school. In short, this sounds like a small town.
As Sarah-Jane Meyer notes, the conversion of commercial spaces into residential units is nothing new in South Africa. Malusi Mthuli, KZN provincial head of FNB Commercial Property Finance, argues that one of the driving forces behind this conversion is the continual offloading of office stock by property funds. These funds, he suggests, consider office stock less viable from a returns point of view vis-à-vis other property sectors. This has provided new building stock into the residential sector where there is demand for well-located residential properties that suit the evolving lifestyles of the working population.
Not surprisingly, this shift to work from home has impacted on the financial results of Growthpoint Properties, South Africa’s largest domestic office landlord with 161 properties. Growthpoint notes that this shift in work locations is creating uncertainty about future space requirements although they suggest that the trend may reverse as new hybrid work models develop. Growthpoint notes that technology has made it easier for people to work at home, although this is not without its own challenges specifically energy security and social isolation. Looking forward they anticipate changes to the office environment especially regarding traditional high parking ratios which may be able to be more effectively repurposed in the future.
This repurposing is providing new solutions for traditional parking challenges, such as the sale of vacant parking bays in areas where finding on-street parking is a challenge.
DISCUSSION AND FINDINGS
Responses to new work-from-home trends by developers and policymakers vary.
One of the early responses was to sanitise the workplace. Thus far this approach does not seem to have convinced workers to return to the office even as they are willing to return to other public venues.
Another response was to adopt the view expressed by the Property Council of Australia and urging, if not demanding, the return of office workers to the Central Business District (CBD) because of its support for CBD-based businesses. This approach is predicated on the dependency of CBD-based businesses on the CBD workforce for their viability. This sentiment was shared by the then government (subsequently replaced in the national elections held in 2022) who urged corporate Australia to follow the government’s lead and urge workers to return to their offices in a bid to “get our CBDs humming again” as it put it4. It does not assess whether a local population residing in repurposed office buildings would not achieve the same outcome, if not more.
This view relies on the traditional notion of a CBD and, by implication, the requirement for transport systems to move people from their place of residence to a centralised place of work.
The sustainability of this approach is questioned as the workfrom-home pendulum seems to be swinging toward a hybrid work model. However, numerous commentators believe that the hybrid work model will remain and that the conversion of office space to residential is one likely to continue.
Bear in mind that this only refers to white-collar workers in upmarket office buildings. Statistics South Africa’s latest unemployment data shows that professional employees are more likely to be working from home than any other worker group in the country. There is very little data on what is happening to B- and C-Grade office space and even less on trends in less developed economies. So, this debate is happening between privileged workers.
Nonetheless, as The Economist argues, the pandemic, for all its illeffects, offers a rare opportunity to rewire the world of work. The critical component in this statement is that the world of work has dominated our city form for decades, and consequently a systemic change to how that world is perceived, may well facilitate a new urban form. The Urban Land Institute’s view that “the resulting ecosystem of workplaces will accelerate a blending of uses between residential, hospitality and office spaces– whether this is the 10-minute city, or New Urbanism – holds much promise in terms of finally restructuring a resilient and sustainable urban environment.
Let’s hope that planners and planning authorities take note and build this into their consenting requirements going forward.
REFERENCES
1 Deghi, A., Fendoglu, S., Gan, Z., Khadarina, O., Mok, J., and Tsuruga, T. 2021. “Financial stability risks during the Covid-19 crisis and beyond.” IMF: Global Financial Stability Report: Pre-empting A Legacy of Vulnerabilities:
Chapter 3: Commercial Real Estate. April 2021. 2 Urban Land Institute 2022. “The Future of Work 2020.” Urban Land Institute and Ernest and Young. 3 CBRE 2022. Spring 2022 Asia Pacific Occupier Survey. CBRE Group, US. 4 Boucher, D. 2020. “CBD workers slowly return to office.” In The Urban Developer. September 11, 2020.
