If you ask people what perk they are looking for from a job, many would say that the flexibility to work from home is high on their list. That’s the direction a few offices are going in to promote morale among their workers and to meet the growing demands from millennials, Gen Xers and baby boomers alike. There are a lot of immediate benefits to workers, like saving time in commuting and travel, saving money in travel costs and dry cleaning, as well as keeping working parents closer to their children. Most workers wouldn’t turn up their noses at the idea of staying at home to get office work done and it’s increasingly becoming a trend that employers are looking into to save rental space. A 2015 Stanford study titled “Does Working From Home Work? Evidence from a Chinese Experiment” followed the effects of telecommuting when the senior management team of a Shanghai-based call centre allowed employees to work from home in an effort to reduce office rental costs (which reached staggering costs from the booming real estate market). They found a few benefits for both employees and employers.
The perks of working from home go beyond workers letting their hair down at home, it could also improve the workplace from an employer’s perspective. The research on whether working from the home or office yields more completed work is conflicted, though the U.S. Bureau of Labor Statistics explained that only 22.0% of employees completed some or all of their work while at home compared to the 84.0% of employees who completed some or all work while in the workplace. These findings conflict with the Stanford study, showing that not all cases are made equal. Some observations were made by the Stanford study and advocate organizations like Remote.co, which have cited some benefits both proven and theorized, including:
- Increases to Worker Productivity: On hectic days at the office, there is no shortage of distractions to keep workers from getting things done. Working from home keeps abrupt distractions to a minimum and eases the employee into a time management mentality.
- Lowers Stress and Boosts Morale: Being at the office day in and day out can take a toll on an employee’s mental health, putting them on edge with a boss surveilling their tasks and projects. A work-from-home day here and there can take the edge off and promote a healthier state-of-mind.
- Reduces Employee Turnover: A happier employee is one that’s more inclined to remain at the company.
- Video Conferencing Offers Strong Engagement: Having scheduled meetings and communicating through a video conference can lead to a strong sense of synergy. As great as the at-home office sounds, there are some drawbacks to telecommuting:
- Interrupted Real-Time Collaboration: It can often be more difficult to co-ordinate on a project when workers are in two separate locations.
- Employees Pursue Other Interests: Tech companies are particularly vulnerable to this practice since some workers pursue their own startup companies during company hours.
Office Rental and the Modern Office Telecommuting can have a profound effect on productivity and office attitudes, but what does this mean for the office space itself? If normalized, the office space would see much less people using building amenities, including other ancillary income businesses and services (such as a deli, parking lot income, fitness facilities, etc.). These businesses may take a financial hit, which could affect neighbouring tenants who may rely on worker’s patronage (restaurant, coffee shop, etc.) or the building owner’s cash flow. Making these observations is Andrea Lange, DBRS’s Vice President of the North American CMBS, who also pointed out that companies may decide to pursue a lease that better suits their needs: “If a company has a lot of under-utilized space (because of increased telecommuting or whatever the case may be), when their lease is up for renewal, they would likely try and ‘right-size’ their space so they aren’t paying a bunch of rent on space that they don’t need.”
This tactic worked for companies like commercial real estate brokerage and consulting firm CBRE, Lange explained, since constant employee travelling to client properties had the firm downsizing its office footprint. “CBRE ultimately packed its bags and relocated to a smaller space elsewhere in Chicago where employees effectively signed out desks or reserved conference rooms on days they needed to be in the office for client meetings.” IBM slashed its occupancy by 78.0 million square feet between the years 1995 and 2009, which saved in excess of $100 million, according to Business Insider.
As employers pursue this trend to appeal to employees with workplace flexibility at the same time as cutting rental costs, the vacancy rates of Class A and Class B office buildings will likely increase, costing building owners. “As this trend starts to multiply, it will become harder and harder to backfill the larger spaces, encouraging landlords to lower rents or offer larger and larger leasing concessions to fill these voids,” Lange determined, “So, while the concept of right-sizing to allow for a more mobile work environment may not materially affect rents in the short term, over the longer term the opposite will hold true. This begs the question, what happens to that vacant space if companies don’t revert back to traditional office space occupancy?” From a CMBS perspective, it is possible that we would see the increased granularity of certain office properties with vacancies in dense metropolitan statistical areas being filled by other tenants, but perhaps an increased vacancy altogether in slower markets.
You can access the full report now at DBRS.com and Viewpoint or by reaching out to info@dbrs.
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