Back in 2021, as experts told us all that an office-centric world of work was gone forever on the back of the shift to remote working during the pandemic, diginomica asked a simple question: if that future was true, what were enterprises going to do with all that skyscraper real estate they’d spent millions and millions building or acquiring?
As we know, the ‘Future of Work’ has turned out to be a complex concept and one that’s still evolving. That said, there’s definitely been a shift away from companies talking up the benefits of remote working, towards wanting to see workers back in the office, at least part of the time. Amazon last week became the latest firm to remind staff that they’re expected to be in an office at least three days a week, while Zoom, the ‘enabler’ of remote working during the COVID crisis, has told its workforce much the same thing.
But full occupancy of those shiny totems of capitalist success seems to be gone forever. San Francisco is a good case in point. The likes of Meta and PayPal have cut back on the amount of office space in the city, while Salesforce, whose Tower looms over the skyline, has been adjusting its real estate strategy, pulling out of a number of locations and sub-leasing others.
Overall, San Francisco’s office vacancy rate has hit a new high, according to data from commercial real estate services and investment firm CBRE. The availability rate, which includes both vacant space and leases ending soon, has risen to 34.6%. Prior to the pandemic, the high had been 19.1% during the dot com crash.
There have been casualties along the way, with significant collateral damage to the local economy, not just in San Francisco, but also in other major cities. Cafes, bars, restaurants, shops etc that were dependent on footfall from the businesses around them have all been seen to suffer.
The latest, and perhaps most high profile (so far), victim is WeWork, the workspace-sharing company once valued at $47 billion, but now warning the SEC (Securities and Exchange Commission) that it’s ability to stay afloat is now in question.
To be fair, WeWork, which has 512,000 members at its workspaces across 33 countries, has had problems that pre-date the current climate, including an abortive attempt at an IPO in 2019, and the fall of its founder and then-CEP Adam Neumann. Interim CEO David Tolley acknowledges the problems the company faces:
Market conditions in commercial office continue to be difficult. In the US, in the second quarter, we just hit 30-year low occupancy rates. Demand continues to be negatively impacted by high interest rates, relatively high inflation, slower-than-anticipated return-to-office trends, and venture capital formation at a multi-year level. Each of these factors is impacting our members and our potential members and their ability to grow with us.
The commercial office environment has become more challenging since the start of the year. And although we don't compete directly with traditional leased office, we certainly aren't immune to multi-decade high vacancy rates and weak pricing in that market. Specific factors affecting membership demand include the unprecedented amount of sub-lease space available, including from our own landlords. Increased competition from other flexible space providers, a dearth of available funding for venture in early-stage growth companies and relatively high interest rates inflation.
And yet, the rise in working from home culture ought, to a degree, to be fueling the appeal of co-working spaces. Even if trudging back to the corporate office lacks appeal, not everyone wants to work over Zoom from their kitchen all day. Getting out of the house and into a well-equipped workspace, where you can interact with other people, hold meetings, get a decent cup of coffee and so on, should be a strong value proposition.
Tolley argues that how employees perceive the space they work in has become an important part of that overall value proposition in a way that it never has before:
Space is just not enough. In our experience, members and employees get differentiated significant value from their workspace when they feel welcomed, energized like part of a network or community. These factors are critical to determining the difference between square feet or desks and a truly effective workplace. So as always, we offer employers flexibility in time and space and geography as their needs change, and we offer their employees something unique and valuable.
I recall one conversation with one of our larger members during an introductory meeting back in June. This was a large cap global media company who uses our services and those of some of our franchisees in perhaps a dozen locations around the world, and they told me directly, ‘We always use WeWork. The brand means something. We can count on consistent quality of service in each of your locations. And there's something different about the energy you get when you walk into a WeWork relative to another co-working space'.
The trick then must be how to communicate this appeal to other potential clients. Tech will play its part here, says Tooley:
One of the ways we're operating more efficiently and simultaneously delivering more value to our members is through our growing technology partnership with Yardi…we worked with Yardi to successfully launch WeWork Workplace last year. This application allows enterprises and their employees to plan their in-office schedules efficiently and improve the ROI on our members' investments with us.
In addition, in the coming months, we intend to roll out a single WeWork app with a consistent digital footprint on both the web and mobile devices that combines all of our current workspace solutions into one streamlined application, whether Space-as-a-Service, All-Access or Workplace. We'll provide our members with a better online experience and further reduce operating expenses and shorten the time to market for other innovative offerings we have in the pipeline.
It should be noted that while WeWork is in trouble, other flexible workspace providers are doing rather well for themselves. IWG, owner of brands such as Regus and Spaces, recently turned in record revenues and a doubling of profits for the first half of this year. The organization, which has almost 3,400 locations in more 120 countries, reckons there’s room for more growth in the evolving hybrid working world. In IWG’s latest analyst presentation, CEO Mark Dixon argues:
Now we are seeing fast-growing numbers of businesses across the world adopt and reap the benefits of a model that involves employees working from home for a day or two each week, alongside collaborative time spent at a nearby flexible workspace and the occasional visit to corporate HQ. If it was the pandemic that initially lit the fuse, technology is the fuel that’s now propelling the uptake of hybrid working to levels that very few predicted just two or three years ago.
Technology frees people from the burden of having to attend the same single far-off workplace five days a week, month after month, year after year, [and] also confers multiple other freedoms – for employees and employers alike. For workers, it takes away the drudgery, the cost, the stress and lost time of commuting, while gifting more time spent with family and friends in their communities and indulging their interests. And for businesses, it eradicates the tyranny and expense of the long-term, city-centre lease while improving employee engagement and productivity.
The lazy argument that gets made against working from home is that the workforce will sit in the garden, or watch daytime TV, or walk the dog. In fact there are plenty of studies that indicate higher productivity levels from home-based working. On the other hand, the case made by many that staff benefit from in-person interaction and working as a real-world team is clearly valid.
And as noted above, working from home isn’t for everyone. From a personal point of view, I’ve been freelance for nearly 25 years and as such was well-versed in not working in an office long before COVID took that choice out of our hands. And here at diginomica, we’re entirely a remote working organization and always have been.
But there are days when it’s nice to get out of the home office and sit in a Starbucks to write. Co-working spaces are a boon in that respect. It’s also good to have a more formal place to hold a meeting than the local coffee shop, without having the commitment of a lease on an office. The travails of WeWork shouldn’t be taken to indicate that there’s any lack of opportunity for growth in the co-working market.
That still doesn’t answer the question we asked two years ago about what happens to the shiny towers in business districts around the world. In San Francisco, there’s some room for optimism to be had from the influx of new AI businesses which may yet get the occupancy rates into a healthier state. Elsewhere, the picture’s not so clear. The post-pandemic world of work remains an evolving and uncertain place.