Joe Learner, vice chairman, director and Midwest Region Lead for Savills, knows the office market. And he knows that this market is on the verge of big changes thanks to the COVID-19 pandemic.
But what are those changes? What will offices look like in the future as the world continues to work through the pandemic?
Midwest Real Estate News recently spoke to Learner, who is based in Savills’ Chicago office, about the office market. Here is some of what he had to say.
Companies are obviously still struggling to determine when to bring their employees back into the office today. But how will the way companies use their office space change in the months, and years, ahead?
Joe Learner: Companies have to answer the overriding question of what role the office serves for their organization. Why do you have an office? What is performed in that office that is of value to your organization? The answers will be different for every company. Obviously, the main use of an office is to house people who are performing work. But that might not be the most important use. An office is also a cultural hub, a place where companies recruit and retain people, a place where you develop peer and mentor relationships and manage teams of people. Every company need to explore what the role of the office space is for them. And then they have to determine how their office space is actually being used.
Pre-COVID, the office was used for all those reasons. You had the collaborative and innovative side where people are working in groups. Then you had the individual, heads-down, solitary work. That was what the office covered. Now we have COVID-19 and everyone gets sent home. Turns out you can be productive at home. But you can’t be productive in all the ways the office is used.
Are companies learning what tasks are better done in the office and which ones can be accomplished from remote settings?
Learner: Those activities that are group tasks, most companies believe they are better performed together, not in the virtual world. They are still better in person. Over time, I think you will see a degradation in the productivity of people working virtually. A think productivity will drop as people work from home for a longer period of time.
Companies are realizing that the solo work, that solitary work, can be effective at home. Knowing that, it does change how you might design your office, how you might allocate seats within your office. If you as an employee do solo work half of your week, in theory you don’t need to be in the office half of the week. You don’t need your seat half of the time. You can share a seat with someone else. Companies will make decisions on whether an individual have a shared seat or their own seat. Should they rely on hoteling? As people come in, they assign desks on an ad hoc basis.
Some of these issues were being considered by companies before the pandemic. Has COVID-19 simply accelerated the changes that were already coming to the office space?
Learner: A lot of companies were hesitant to be a pioneer in this. There have been in the past attempts to do more remote working on a large scale, particularly with sales forces. But those experiments haven’t by and large worked out that well. But of course, the tech wasn’t as good back then, either. The tech has caught up. Now companies have been forced into this experiment. The confluence of factors makes it seem as if it works. Everyone is doing it at the same time. You are not an outlier when you pursue this kind of thought.
But it is very difficult to really understand what the intermediate and long-term implications of a drastic change of workplace environment is when you are going through a pandemic. The best time to make decisions isn’t when you are in the middle of the storm. The best time is when you have the ability to gather information and see what things might look like in a normal environment. It’s hard to create a new normal environment with certainty when you are not in a normal environment. If you have to make decisions by necessity, then you make them. You don’t have the luxury of time. If you do have the luxury of time, it is always better to make a decision when you can gather information.
As you’ve said, employees can be productive from home. What, then, will companies use their office space for in the future?
Learner: The future of a company is its young people. They are important pieces of today and the future leaders of tomorrow. The office environment plays a key role in providing them with mentors, in boosting their career development and in forming their peer-to-peer relationships. Their absorption of their company’s culture is critical. Those are some of the primary functions that an office serves. It is much more difficult to do these things remotely. No one is making a best friend from Zoom. You can make a best friend from the work environment or social environment during the day or after work. The hard-to-measure but very important benefits that getting people together physically brings are critical to the success of an organization over time. This whole notion that the office going away, is not something I believe.
But the office can change. How do you configure it differently if 40 percent less people are in there every day? Not everyone will have to be in the office at the same time. Instead, you might have people coming in coordinated shifts. You might have the people who need to be collaborating on a project in the office at the same time. So maybe you need more meeting spaces and less heads-down space.
How difficult will it be for companies to get their employees back into the office after this long break?
Learner: Universally, the first thing out of anybody who is leading the back-to-the-office agenda for a company is a focus on employee safety first. Everything starts with, ‘How do I keep my people safe?’ Safety, of course, is both real and perceived. I think that companies and landlords have done a great job of figuring out programs to get people back into the buildings and the office safely. But they are not at the point where they can accommodate everyone at the same time. That would violate social distancing.
There is also perception. How do people get to work? Many do not view public transportation as a safe way of getting there. Other employees still don’t feel comfortable going into an office environment. They might ask, ‘We’re not going to restaurants, so why should we go to the office?’ People have a lot of perceived fears about returning to the office. There are also a lot of people who are high-risk or care for someone or live with someone who is high-risk. Are you going to put yourself in an office environment if you have to care for an elderly person or you have a condition? The practical aspect is not there at this point.
In downtown Chicago, occupancy level in most office buildings are under 10 percent. In some buildings it is at 5 or 6 percent. There are about 95 percent of the workers still not coming back to the office in Chicago.
Do you think tenants when negotiating new office leases will fight for clauses that provide them with some form of rent relief if a pandemic hits and they can’t use their office space?
Learner: It’s complicated. You have tenants who are signing leases as an occupant. You have owners. And then you have lenders. You have to design your leases and contracts with not only the present in mind but also the future. You want protections. There is a fairness aspect to. A lease is about who takes on the responsibilities for risk. Right now, the tenant is taking full responsibility for the inability to use the office space. That’s how it’s been. But nothing that says moving forward that tenant has to take on the entire responsibility for the risk of not being able to use the space.
Now, the landlords could say that they are still providing services. It’s not their fault that companies aren’t using the space. The tenants, though, are saying it’s not their fault, either. They are saying that they have no ability to use their office space right now. So why are we paying you money to use the space? That dynamic might change in the future. There might be an insurance aspect to this. That might be one way to mitigate some of this issue. Any changes will be pushed most aggressively by larger anchor-type tenants. They have the leverage to demand these types of protections. We are already seeing some tenants who are making that claim. There is a fairness perspective. Is it fair that the risk is being 100 percent borne by the tenant while zero percent is borne by the landlord? Often times those zero/100 dynamics find a way of getting off those polar sides of the spectrum.
All this being said, do you have any guess on when we might see more employees return to the office?
Learner: If you don’t figure out the schools, you will still have a lot of workers who can’t go to the office. These things are tied to one another, which is why you see the Googles of the world keep pushing out the date when they want their employees to come back. Many companies are now looking at this as if there won’t be a widespread use of their office space until we have a vaccine or treatment of some sort. All these other issues, the at-risk people, the schooling, they don’t solve themselves fully until that vaccine or treatment arrives.
I wouldn’t be surprised if we aren’t looking at the second half of next year. But things will change. That work-from-home fatigue will change and increase over time. People are going to start bouncing off the walls. We are already seeing this with groups of young people congregating in violation of social-distancing rules. People will return to the office. But it will take some time.
