Why Coronavirus won’t change how we work in the long-term
Who else has noticed that it has become mandatory to open our socially-distanced conversations with banter about ‘the new normal’ the ‘post-lockdown world’ and ‘things having changed forever’?
Although a welcome change to small talk about the weather or traffic jams, I am convinced that many of the assumptions being made about the post-Coronavirus world are incorrect. Indeed, I believe the ‘new normal’ will look very much like the ‘old normal’, when it comes to the workplace.
Since even before the virus outbreak, many commentators predicted a decline in demand for conventional office space. We would all move to more flexible space. That barely happened. Now they argue that people won’t feel safe returning to work at all. That staff can work effectively from home, foregoing their daily commutes, and leading to substantially smaller footprints.
I’m not so sure. People will quickly start to ‘feel safe’ again. Post-9/11 there was a widely held view that office towers would become obsolete. They didn’t. New York’s skyscrapers outperformed many other real estate asset classes. But, back in 2001 - with the psychological image of the twin towers in flames fresh in our minds and psyches - that was hard to believe. Today, it’s hard to imagine feeling safe on the tube. But as the virus fades, so will the stigma.
British Land’s Simon Carter was recently reported saying that conventional office space will remain important, and that although homeworking is likely to accelerate, it is nothing new. I couldn’t agree more. Most of us have had some level of flexibility in that regard in the past. However, for various reasons we choose not to. Not least since human beings are innately tribal. We are ill-equipped to live on our own.
More so the central meeting place of an office provides the environment for social bonding, helping to keep individuals committed to the organization. Without that, traditional employment structures will become disintermediated to the extent that we will simply become a mass of outsourced contract workers. There will be little or no social or organizational cohesion to keep staff from wandering off and joining other companies at a moment’s notice. The value or promoting positive organizational culture will be negligible.
That’s aside from the creativity, productivity and positive competition that can develop when humans collaborate with one another. It’s those soft factors such as being able to creatively bounce ideas with colleagues, after work drinks, etc. Once the novelty wears off, I doubt many of us see home-working as a permanent solution. That’s quite apart from the psychological effects that it may have in the long-term - especially for the (often younger) team members who live alone - and may feel particularly isolated.
While it’s easy to calculate the rent savings on reduced office footprints in major worldwide cities, few commentators net that off against the costs required to purchase/lease the incremental space required for home-working. Those living in the relatively cramped cities of London, New York, Hong Kong for example, quite simply do not have sufficient or suitable excess space available for permanent home-working. That’s a major factor at both ends of the scale: for single-dwellers; and for families who will have regular interruptions of kids going to and from school.
The per-square foot cost of purchasing/leasing the excess space required will directly exert pressure on wages in order to mitigate that cost. In the world’s most expensive cities that cost will be prohibitive. It will far-outweigh savings derived from correspondingly reduced office space.
My strong conviction is that demand for office space post-Coronavirus is likely to rise, rather than fall. For all the reasons that I have outlined above, companies want their staff back in normal working environments. Companies will take measures to reduce density. We will initially see significant increases in desk spacing, the size and number of kitchen or canteen facilities, meeting rooms and toilet facilities.
The co-working economic model generally relies on higher density workspaces when compared with conventional offices. In London for example, the average density across seven of WeWork's core locations is 5.2 sqm per head versus an average of 11 sqm per head for the 'conventional' offices of Goldman Sachs, Deutsche Bank, Diageo and the FCA. If conventional offices will be required to increase densities by a factor of say 1.5x, this will imply a 3x increase for co-working companies. This may put their business under extreme strain, at least temporarily.
Let’s not forget that CEOs will also have other fires to fight once the world normalizes. The time and cost required to undertake a re-location will be far down the agenda for companies facing existential threats to their survival. That’s not to mention the cost of extrication from their incumbent lease liabilities.
Coronavirus has indeed created some bumps in the road, but it won’t change how we work. The consequence of the above is that we are extremely positive on the outlook for core city-center offices. We believe that the recent crisis will produce a multitude of opportunities in the sector – for both debt and equity investment.
Jacob Lyons is Co-founder of Rivercrown