TC Global Insights

Future of Work

Impact of Remote Work on the Office Economy

Remote work is not a novel concept. Even in a pre-COVID world, many organizations were moving towards a hybrid model, which included work from home (or anywhere you like) as a mode of working. However, these were exceptions, rather than the norm. Today, remote work is the norm. And that’s the big difference, which is having a ripple effect on, well, almost everything.

A survey conducted by Gartner, one of the world’s leading research and advisory firms,  revealed 74% of CFOs said they planned to make remote work permanent for some of their people. There are many positives in favour of this system — increased productivity, higher employee retention, and lower environmental impact, to name a few.

But, as with most seem-good systems, remote work too can be a double-edged sword.

We examine some impacts here.

Redefining the office economy

Remote has redefined the way some of the biggest companies function. It was sometime in May this year when it became clear that the pandemic was not disappearing anytime soon. In no time, major tech companies like Facebook and Twitter announced more flexible work-from-home policies. What’s important to note is that this does not seem to be only a pandemic-response thing. While it is needed right now , most organizations have gone on to announce that this could be a permanent feature, even post-Covid. As Jack Dorsey, CEO of Twitter and Square, said that employees who can work in a productive manner can permanently do it, if they wish to.

As we saw, Google and Zillow followed Facebook’s lead.  Amazon and Microsoft too have gone the remote way and are telling their people to work from home till sometime next year. Then there are others, like JPMorgan Chase, Ford Motor, and REI, who have announced some version of a long-term or permanent work-from-home future. Pinterest, of course,  made news when it said it would pay a USD 89.5 million contract penalty to cancel its lease in a swanky building in San Francisco. It was a sign of the times – the company would rather pay a huge penalty than take up an office space.

These are a few signs of the way the wind is blowing – organizations are increasingly seeing the merits of remote work and getting more convinced that people can be productive as they work from home. It’s leading to a reduction in corporate America’s physical office footprint (and in other parts of the world too).

For the US in particular, this is leading to a critical question – will remote work mean the death of the Silicon Valley ecosystem? It might. However, is COVID the sole cause, or was this going to happen anyway? Some make the case for the latter, arguing that traffic woes and high real estate prices were already making it unsustainable to work in Silicon Valley (for most people).

An internal survey conducted by Facebook in May 2020, revealed that most of the company’s employees would prefer to work from home.

The scenario is similar in India. IT major Tata Consultancy Services has gone on record to say that until 2025, 75% of its 4.48 lakh employees globally (including 3.5 lakh in India) will work from home, up from the industry average of 20% in the pre-pandemic times. Many other companies are following this practice.

This spells good news for the working professional, who is saving both time and money, thanks to remote working. A survey conducted by Awfis, a leading co-working space provider in June 2020, found that an average working professional in India was saving Rs 5,520 per month, and 1.47 hours of travel time every day, while working from home. 74% of the respondents surveyed were willing to work remotely, whether at home or a neighbourhood cafe, to save up on time and costs in the long run.

The real estate problem

An obvious impact is on rents. If people don’t work in Silicon Valley (and also don’t get paid the same) then living in a high-cost accommodation makes little sense. A survey, conducted in mid-May by the recruitment marketplace Hired, which included Bay Area tech workers, found that 42% of the people would move to a less expensive city, if their organizations implemented permanent remote working.

Another survey conducted by Blind, a platform for workers that lets them discuss their jobs anonymously found that 15% of the respondents – that is the Bay Area professionals – said that they had left since the pandemic began, although it is unclear if the move is temporary or permanent. Of the remaining, 59% said they would relocate, if their companies permitted it.

This potential outflow of tech workers is already impacting real-estate prices. Rents have begun falling for the first time in years.  As per Zumper, a renting listings platform, the median rent for a one-bedroom apartment in San Francisco in the month of July dropped by 11% compared with the same month a year prior. In Cupertino, which  houses Apple Inc., and Mountain View that is home to Google, the median rent for one-bedroom apartments fell by more than 15%.

New York too has been badly hit. The city has seen one of the highest infection rates in the US. According to The New York Times, between March 1 and May 1 the city’s residential population went down by 40 percent in some of its most affluent blocks – like the Upper East Side, Upper West Side, and SoHo area.

According to a report by Miller Samuel, in  Manhattan, there are double the apartment vacancies than there were a year ago. They stood , at about 13,000 in July, with an average 6.1% drop in rents – the largest decrease in nine years.

Paralysis of the white-collar office economy

Small businesses have been amongst the hardest hit, with many  struggling to survive. Whether it is mom-and-pop stores, large brick and mortar retail chains, as well bars and restaurants – all these spaces are not seeing the same number of footfalls as they used to, even after partial opening.

The decline of white-collar office economy, thus, is taking its toll. It highlights a looming threat to an entire office economy worth trillions of dollars a year in GDP .

If you think about all the ancillary businesses – both big and small – that were dependent on the office goers, it comes to a large ecosystem, which is now on life support (it comes to some, 100 million people) . Think about the  florists, the gyms, the dry cleaners, the shoe shiners, the coffee sellers – to name just a few – who made a living because people went into a physical workspace. Not to mention bigger names like Grubhub and UberEats who relied on these white-collar workers. It’s all silent on these fronts now.

The bankruptcies of names like Brooks Brothers and J. Crew, are a case in point. No work, no work clothes.

Then there’s Starbucks, once the Mecca of white-collar workers, which is running losses. The office workers are home, brewing their own coffee, sitting on their couches (or desks) and wearing pajamas. The queues for latte are all but gone.

When it comes to travel, it’s a similar story. 60-70% of all airline revenue was dependent on travel by the office worker. That’s come to an end, impacting revenues and sending airlines into the red.

Unsurprisingly, according to the Wall Street Journal, business travel in July this year was down 97% from last year, and an estimated USD 2 trillion in corporate travel will not happen this year.

Further, American Airlines said it will eliminate service to 15 cities in October, thus reducing its flying capacity by 55%. Delta, in a report, shared it will furlough 1,941 pilots if it can’t get more money as well. In August, Virgin Atlantic also filed for bankruptcy.

The same situation extends to hotels as well.  As of July, 23.4% of mortgage-backed loans that were given to hotels were delinquent at least 30 days, amounting to $20.6 billion.

So, where are we headed?

In a superbly titled article,  ‘Remote Work is Killing the Hidden Trillion-Dollar Office Economy’, writer Steve LeVine says,  “The implosion of the office economy is not necessarily a black-and-white story of ruination. The resilience of cities is a pillar of economic history. Wars, economic downturns, and catastrophic natural disasters have come and gone, but very few major cities have outright disappeared or even been permanently held down. On the contrary, most have revived themselves in much the same economic and demographic shape as before their respective crises. ”

The stay-at-home orders triggered by COVID has essentially forced a global social experiment on remote work that is going to stay much beyond the pandemic. Moreover, it has brought about massive shifts in our mindsets in the way we live, learn and work. The long-term impact of it all will take time to access – until then, it’s a wait and watch game.

Date added
21.10.2020

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Future of Work

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