As I was working from home the other day on the deck, my dogs started barking and I look over my shoulder to see this guy staring at me… I’m looking forward to getting back to the office 😊 Most companies have now realized that they can work as effectively remotely, and many employees actually like it better.  Will demand for office real estate go away?  Will the dire office predictions pan out?  Why is Amazon bucking the remote work trend and betting on the office of the future?

Amazon bucking the trend

Amazon is expanding its physical offices in six U.S. cities and adding thousands of corporate jobs in those areas, an indication the tech giant is making long-term plans around office work even as other companies embrace lasting remote employment.

“The ability to connect with people, the ability for teams to work together in an ad hoc fashion—you can do it virtually, but it isn’t as spontaneous,” said Ardine Williams, vice president of workforce development at Amazon. “We are looking forward to returning to the office.”

Amazon’s move to expand its footprint in various cities and set expectations for a return to the office contrasts with other major technology companies that have implemented remote work and predicted it will last long after the coronavirus pandemic.

3 changes to the office market

When I first started out of college, I worked for a major tech company that had a 1.3 million square foot campus in Oregon complete with gyms, daycare, cafeterias, etc… It was a small city for the employees that worked there.  What does the future hold for the office market?  3 major changes coming down the pipe.

  1. Large corporate campuses will be reimagined
    1. I don’t think the corporate campus is going totally away, but it will be drastically reimagined. No longer will there be thousands of cubicle workers packed in like sardines in large open areas.  You will see a radical shift in corporate campuses where employees are spaced further apart and some sort of scheduling is implemented to reduce the number of employees on site at any given time, for example one group is Monday and Wednesday with another group Tuesday and Thursday.
  2. Smaller remote offices will be in vogue
    1. As the corporate office is reimagined, to spread out risk, companies are looking to place workers in smaller decentralized suburban locations. Many companies want their employees in person in some fashion.  This is the route Amazon is taking.
  3. Co working will have a rough ride
    1. For the last 10 years co-working spaces have been the rage. I don’t see this trend continuing for the next several years.  For many employers it is too high risk for their employees to be in a central space with different people. The co-working model is in for a bumpy ride.

Long term: 3 changes to the office real estate from Coronavirus

About 12 percent of professionals worked from home before the pandemic, said Norm Miller, the Hahn chair of Real Estate Finance at the University of San Diego School of Business. That could easily rise to 18 percent to 20 percent going forward. “That is not that much of an increase,” he said.  Although, the office is not going away, there will be some continued changes to office real estate.

  1. There will be a reduction in office real estate space in tier one cities as employers migrate to “safer areas”. Many of the tier one cities also have large commutes via public transit, think Chicago or NY that increases the contagion risk for employees and employers
  2. The losses in tier one cities will be met with gains in less dense tier two cities like Denver and suburbs of Atlanta (Dunwoody, Sandy Springs, etc…)
  3. Although there will be losses as companies adapt to the new paradigm of remote work and office locations, I don’t think the office is going extinct anytime soon.

Summary

The office is not going completely away as some predicted.  In the short-term productivity has stayed constant and employers and employees are happy but I imagine this to be short lived.  As soon as there are transitions on teams with new employees the model changes as the new team members do not have the in-person cohesiveness of the rest of the team.  Virtual is good to some extent, but the human relationships in work are just as important if not more important for success.

Starting at a fortune ten company out of College, I quickly learned the relationships made at the cafeteria, in the company gym, or at the break room were critical to my success along with the success of the company. it is the random interactions with people throughout the organization that drive innovation. Amazon is betting on the same trend to continue to drive its growth by expanding physical offices to ensure long term business success.  I’ll bet over time others will follow suit and the office market will adapt to the changes.

 

Additional reading/resources

 

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Written by Glen Weinberg, COO/ VP Fairview Commercial Lending.  Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in Bloomberg, Businessweek ,the Colorado Real Estate Journal, National Association of Realtors Magazine,  The Real Deal real estate news, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.

 

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