By Guy Vardi | Silverstein Properties
Please note: this post originally appeared on the Dojo blog
Since COVID-19 forced businesses across the country to go remote, one in three Americans — nearly everyone whose job allows it — is working from their kitchen table or bedroom. We are all living through the biggest social experiment in a century. Can we continue to work from home, and enjoy it? And, what does this mean for the trillion dollar commercial real estate industry?
As it turns out, more and more people think we can work from home, and should continue to do so. For a nation long frustrated with offices, the coronavirus offers an excellent excuse to avoid them. According to McKinsey, 69% of people who now work from home are equally or more productive than they were at the office. 60% — three in five — say they would prefer to stay home — even after the pandemic is over.
As business leaders and managers realize the advantages of remote work, many companies are wondering if they need offices at all, or at least as much space as before. Saving money by reducing their real estate footprint is a tempting proposition: protect employees from the virus while cutting costs in a rough economy. The consequence, according to Stanford economist Nicholas Bloom, is that the value of Downtown skyscrapers could drop by 60 to 70 percent.
This is not a “V-shaped” blip: it’s unlikely office usage will suddenly rebound once a vaccine or cure is found. This is an “evolve or die” moment for the real estate industry.
The office — as we know it — is in danger of becoming irrelevant to its users.
Now that office tenants have discovered a reasonable alternative to offices — employees’ homes — the responsibility is on building owners, office managers and brokers to demonstrate what value their spaces add.
Most building owners are responding to the coronavirus crisis by sanitizing their office buildings, installing social distancing signage, promoting their buildings as “safe spaces,” and hoping that their tenants will come back, and continue paying rent. But, unfortunately, social distancing and hand sanitizer will not reconcile the growing rift between landlords and their tenants.
Without changing course, the real estate Titanic is about to hit the iceberg. Due to the nature of long-term leases, the ship is moving slowly. But make no mistake, the risk of becoming obsolete is real. Even a ten or fifteen-year lease will expire. Listening to dozens of CEOs in recent weeks paints a clear picture. The industry needs to change course.
If this seems scary, it should. But this isn’t a hopeless moment. A once-in-a-century crisis presents a once-in-a-century opportunity: rethink the makeup of the office and the role it plays in helping its users succeed in their business.
Focus on your strengths. Or, how the office becomes relevant again.
The future is hybrid. The office and the home are places where different types of work get done. The things that offices were good at before the virus — fostering collaboration and building culture — are what offices need to embrace and enhance going forward. Meanwhile, coming into the office just to do solo work doesn’t make sense for many workers.
In a recent survey of employees, only 40% of the participants said that they can manage distractions at the office, while over 70% said they could focus from home. 86% reported satisfaction with the office as a space for collaboration, in contrast to 26% who were happy with collaborating from home. Most strikingly, while 81% were happy with their ability to coach, mentor and manage people at the office, only 50% were at home.
The formula is simple. The office fails to allow people to focus and avoid distraction, yet it is essential for supporting collaboration and relationship-building — the long-term drivers of a company’s success.
Where culture comes from
When Google studied its most productive groups, they found “the most important quality was psychological safety — confidence that team members wouldn’t embarrass or punish individuals for speaking up.”
These days, the teams that have seamlessly transitioned to remote work are already psychologically safe. But, if our work from home experiment is conditioned on preexisting social bonds between people, forged face to face, what happens when teams realign? Or when managers change? How do you integrate new hires and bond them to your company?
A friend of mine recently started a new job at a finance company — remotely, of course. They have an intense culture and expect a lot from the people they hire. He joined up intending to work hard, but in this role he feels lost.
Working from home, he has found it impossible to have the small, spontaneous interactions with his team that normally provide a sense of priorities and expectations. “I chat more during the week with friends I sat next to in my old office,” he told me, “than I do with my new coworkers.”
Team vs. individual productivity
After one Fortune 500 tech company eliminated coffee kitchenettes in their office to cut costs, their engineers seemed more productive: the number of lines of code written went up. But, where individual productivity went up, team productivity went down. There was a spike in the number of bugs related to integration between teams, and it took longer than before to release new versions of the product. Without serendipity, and informal interaction around the coffee machines, inter-team coordination suffered.
For a company to keep growing and innovating — not to mention attracting and retaining the best talent, it needs spaces for people to form relationships, build trust, and resolve conflicts. It needs to deliberately make and re-make its culture.
Over the long term, culture is what makes a company successful. No community? No culture.
Use the force
Obsolescence is a choice. In the 19th century, railroad companies devoted their resources to improving train cars, and competing amongst themselves, rather than undermining automobiles and highways. They failed to understand that they were not in the railroad business — they were in the transportation business. Once they realized their real competition were planes, trucks and cars, it was too late. How many people take a train from Chicago to New York?
If landlords want to avoid the fate of the railroad tycoons, they must understand that tenants lease office space to increase productivity and the engagement of their employees, not just to give companies a place to exist.
Commercial landlords are no longer in the business of leasing office space. They are now in the business of work, productivity and collaboration.
Data and science
The key to this is the use of data. Companies need to better understand their needs, measure how well the workplace addresses those needs, and how they can optimize the workplace to improve performance.
Just as we are relying on science to navigate a way out of the pandemic, we can and should use science to make decisions about the future of the workplace.
Data is the best way to get a socially-distanced workforce back to the office: Data backed diagrams can help employers and employees build the confidence they need to come back in, and answer the questions, who comes in and when, where they go, and how to keep them safe.
We built Dojo to automate this process
If more and more people are going to focus-work at home, how should companies think about reallocating the spaces that the office offers? Companies must understand what kinds of environments employees actually need and what they don’t.
Step 1: Assess the organization’s needs and define the goals:
The goal of the workplace is to get things done. The first step is to understand who works together, and who doesn’t interact. Combining workers' opinions with objective data (calendar, emails, document sharing) lends insights to mapping a better office and making smarter decisions. Technologies such as Dojo use AI to analyze the digital footprint of an organization and assess the needs of individuals, teams and the organization at large. That allows workplaces to rapidly adapt to changes in the way people work and to dynamically manage a hybrid workplace (people flexibly working from the office or remotely).
Step 2: Measure performance:
Each company requires a balancing act between competing requirements. A workplace designed for individual focus will look very different from a workplace built to encourage serendipity and informal collaboration. Dojo helps measure what firms need, giving them an objective view on the performance of the office, and makes the tradeoff process as transparent as any other business process should be.
Step 3: Optimize the workplace:
In 1943, Winston Churchill said, “we shape our buildings; thereafter they shape us.” 77 years later this is still true, but now we have technology to help us understand the countless ways we’re conditioned by physical space. There are more seating options for an office with 200 employees than particles in the universe, but advanced algorithms can make the seemingly impossible task of creating an optimized and ever-evolving workplace manageable.
Step 4: Do it all over again:
You’ve optimized your workplace? Great! Now start all over again. Companies are not static. People are hired, people are fired or leave. New markets emerge, old products die. As companies evolve, their needs and goals change. Using data and algorithms allow us to constantly iterate, improve the environment and measure what works and what needs changing.
The office is dead, long live the office
The office of the past is dead. If it is to live again, it must adapt and find new ways to become relevant to businesses. Rather than panic and regress to cubicle farms (or worse, buy these things) the industry has a once-in-a-century opportunity: rethink the makeup of an office and the role it plays in helping tenants succeed.
Using data and AI are key for executing this shift successfully. Real estate companies that embrace them will be able to connect with and add value to their tenants in big and unprecedented ways. Corporate real estate owners that are slow to adapt will find it harder and harder to rent square feet and fill their spaces.
After reading Darwin’s Origin of Species, the management guru Leon C. Megginson observed: “it is not the most intellectual of the species that survives; it is not the strongest that survives; but the species that survives is the one that is able best to adapt and adjust to the changing environment in which it finds itself.”
Unless landlords adapt to the needs of their tenants, their buildings will become another casualty of the coronavirus.
Guy Vardi is Chief Innovation Officer at Silverstein Properties, a global real estate owner and developer based in New York City. He is also co-founder of Dojo. // Dan Goldstern is co-founder of Dojo.