Creating a successful hybrid office

by Christopher Johnke and Tyler Hales

Varying levels of office subscription.

The post-pandemic scarcity of labor has created a new challenge for employers. The labor force is demanding flexibility where work is performed. In the current market for talent, employers have no leverage to bring their employees back full time to the office. Some experts say the world will never return to a five day “in the office” work week. Hopefully, the events of the past three years have taught people to “never say never,” but for the time being we must deal with the situation at hand. There are basically three levels of “office subscription” occurring in the market right now:

• The “Goldman Sachs” model, characterized by a requirement of being in the office more than four full days per week. The rationale for this model is based upon talent succession and the need to train new annual “classes” of recruits in the methods of the business. The office needs of this type of company are mostly unchanged.
• Fully remote companies with a geographically distributed workforce because of pandemic hiring across a wide geography.
• Hybrid, working 2-3 days per week in the office. This discussion will focus on the hybrid case and how to create an office maximizing innovation, collaboration and productivity.

At this point everyone is aware of human social needs for interaction and how non-verbal cues can be mis-interpreted in virtual meetings. Data is emerging that expands upon this and highlights the importance of working together in terms of collaboration and innovation:

Over time, we’ll find that analysts in the public markets will be paying attention to hybrid work policies in making industry comparisons.

Occupancy technology will provide a measurable usage of in-person collaboration that will be comparable to financial results. Companies that can get their employees to work together on an in-person basis will outcompete their competitors. Despite a de-emphasis on spending time in the office, having a well-suited workplace has never been more important.

Market timing has never been better.

Uncertainty, confusion, and low in-office subscription have placed historically strong office markets in peril. We have yet to experience the full effects of the fallout. In San Francisco, office vacancy exceeds 20% and tenants currently in the market are on average seeking more than 30% less space than they currently occupy. Vacancy will continue to accelerate across all office classes and particularly in the commodity space market. While this is terrible news for owners of office buildings, this is good news for tenants seeking to renovate their workplace to adjust for hybrid work to lure employees back to the office. While costs to construct interiors have not decreased, Landlord concessions in the form of free rent and tenant improvements are increasing. Rents are decreasing. The environment is good and getting better to renovate the workplace to maximize productivity, collaboration and innovation.

Elements for a successful office.

What is the best way to find success in creating a workplace that best supports innovation in the hybrid workplace? Create an environment that draws people back to the office. That involves an over-emphasis on the fundamentals of a great office, but with a twist. While the world continues to evolve, the fundamentals of office selection remain constant:

• Excellent location
• Great interior design and features
• Deal structure considering the notion the workplace will continue to evolve

Location is everything.

People want to be a part of something great and physical location presents a major internal branding opportunity. Some of the world’s top companies use place as a major way of branding. Internal branding is a big part of employee attraction, retention and engagement. People are excited to work in top buildings in prestigious neighborhoods. Apple, Goldman Sachs, and McKinsey & Company to name a few, occupy some of the best real estate in the world and their real estate supports productivity:

• Ease of commute – excellent access to public transit.
• Neighborhood – high end restaurants, gyms and other entertainment amenities.
• Hotels are a key and ever more important amenity to have nearby, especially for companies with a geographically distributed work force.

Locating in a top neighborhood with excellent transportation and amenities will provide a powerful base for bringing people back. A recent study performed by Cushman and Wakefield using anonymized cell data found that offices in vibrant neighborhoods in San Francisco, New York, Chicago, and Atlanta have approximately 85% of employees returning to the office compared to pre-pandemic baseline. Non-vibrant neighborhoods, in comparison, have approximately 55% of employees returning to the office.

Design is Critical.

Unique views are a way to provide something not available to most employees in their home. In a post work from home environment, upgraded interiors will be a draw in bringing people back into the office. The opportunity to work together comfortably has changed for the better. Less office spaces. More meeting spaces. Audio/Visual technology that allows full participation for remote employees during in person meetings. But the space must be exceptional, creating fear of missing out. More than ever, it is important to create a space that emphasizes a welcoming collaborative environment. Multi-purpose space that can be used for meetings and events. There has been an increase in demand for hospitality and residential influence in interior architecture. Sustainable design is important – most companies are doing this, but it needs to be branded. Natural light and plants are important, and many companies are seeking to build a neuro-diverse environment that includes considering people with developmental disabilities. And of immense importance is furnishings. Furniture that makes people feel at home and comfortable in the workplace will help.

Efficient Financially.

Lastly, there has never been an opportunity in recent decades to have an office to be so efficient from a financial perspective. Recent and continuing office market turmoil makes it possible to take space at a lower cost for a shorter term. Technology platforms are creating opportunities to downsize space as employees can schedule space usage and coordinate with team members with whom they may be collaborating. In historically expensive cities like San Francisco, New York, and Seattle, space is abundant, and rents are going down while Landlord concessions are going up. In addition, many landlords in these markets are willing to restructure leases to allow tenants to decrease footprint and rent in exchange for term extension. The level of office usage by employees is likely to gradually increase over time and the ability to do shorter term leases means reducing the need to over-commit to larger space.

Getting people together more often is the key to increasing collaboration and innovation. The cost of well-designed space in great locations is becoming more affordable. Technology and more favorable markets are allowing for flexibility in size and shorter-term leases. The fundamentals of design and amenities are more important than ever, and they have never been more achievable in decades. Despite the reduced emphasis on time in the office, a well thought out hybrid workplace is even more important than the earlier version of the office. Well-managed companies will take advantage of this unique opportunity in time to create a space that accelerates innovation.