By Emily Cadman
As companies prepare for a post-pandemic world, the much-mooted “hub and spoke” workplace model is evolving in unexpected ways.
Forget the idea of a city-center office hub and a handful of smaller, suburban spoke offices. Most large corporates are doubling down on existing prime locations, hoping to lure workers back to the office with swish buildings and proximity to restaurants and shops. In the new hybrid set-up, the low-cost, commute-free spoke is your own home.
For companies that do see a benefit in having additional formal work locations, the answer is not — as some predicted early in the pandemic — directly leasing secondary office spaces in the suburbs. Instead, companies are partnering with flexible workspace providers to give employees access to a network of locations.
Both options allow companies to cut space overall and swerve difficult decisions about picking non-central locations for dispersed staff. They also avoid the risk of secondary offices becoming, well, secondary, while senior managers and staff with big ambitions or limited responsibilities outside of work gravitate to HQ.
“The spoke is work from home,” said Joanne Henderson, director of research for Colliers Australia. “We’ve not seen any move to uproot people outside the central business district.”
Instead, she is seeing a “flight to experience,” with demand highest for top-quality buildings close to amenities and infrastructure. Or as Henderson puts it: “People don’t want to go somewhere without nice lunch options.” So far in 2021, 80% of Colliers’ deals have been moves within one area rather than companies heading further afield.
Since the emergence of Covid-19, lockdowns and other social distancing measures have sparked a major reassessment of the white-collar workplace. About 70% of knowledge workers plan to work remotely at least one day a week even after the pandemic, according to OECD research. In the United States, 39% of adults would consider quitting a job that did not offer flexibility, a survey conducted earlier this year found. And while some companies — notably the biggest investment banks — are standing firm on bringing employees back to the office full-time, companies from Vanguard Group Inc. to Ford Motor Co. are permanently adopting hybrid work schedules.
While many employees appreciate the flexibility of remote working, companies can benefit too.
Take NIB Holdings Ltd., an Australian health insurer with 1,200 employees. In October, the company announced that it is encouraging staff to work remotely at least four days a week and introducing an annual $1,200 allowance to defray home office costs.
The shift has allowed NIB to give up two floors in one of the most expensive office buildings in Sydney. “There’s been a considerable cost saving,” Chief Executive Officer Mark Fitzgibbon said.
“We have to have office space for those who want to come, for example those who have no alternative working space at home,” Fitzgibbon said. But he is not convinced that secondary workspaces would be economical or that employees particularly want them, and the company has no current plans to expand into smaller offices.
Predictions that companies would build a bigger presence in the suburbs were bolstered early in the pandemic by experimental moves from U.K. banks like Virgin Money Plc and Lloyds Banking Group Plc to repurpose space in high street branches for office workers.
Unions and local councils hoped this could reduce pressure to shrink branch networks as well as injecting cash into local economies as office workers relocated. That now looks unlikely.
Virgin Money announced in September it will be closing nearly a fifth of its stores as customers increasingly move online. While the bank plans to give staff greater flexibility around working patterns and locations, home offices are anticipated to be the major base, a spokesman told Bloomberg. “We don’t have plans to open any offices and we do expect our office footprint to shrink,” he said.
Lloyds, which expects around 80% of its staff to have a hybrid work style post-pandemic, also plans to shrink its overall real estate footprint and to consolidate into fewer, better offices. At a recent strategy update, the bank told investors it expects a cumulative 20% reduction in office space by 2023.
Those companies that are on the hunt for more space are mostly trying to do it via flexible workplace providers, rather than taking on additional leasing commitments. For example, Standard Chartered Plc and Japan’s Nippon Telegraph & Telephone Corp. have both inked agreements with office landlord IWG Plc that give their employees access to 3,500 workspaces worldwide.
The two companies’ use of IWG offices rose 164% and 416% respectively this quarter compared to the previous period, according to the workspace provider.
“A lot of people want to drop into an office because they don’t want to work from home,” said Mark Dixon, IWG’s CEO. “Many people have interruptions at home. Family, dogs, cats — we’ve seen it all during the pandemic.” That doesn’t mean employees want to commute every day, he added.
Cutting back on commuting and running underused office space can also reduce a company’s carbon emissions, Dixon said. Reductions in costs and environmental burden will “of course” be even greater if employees work from home, but that is harder for some people than others.
Real estate professionals are wary of making too many hard predictions about future office footprints, though.
Most of the activity at the larger end of the market has been driven by companies with impending lease expiries who can’t delay making a decision any longer, said Simon Howard, head of asset management for Australia at LaSalle Investment Management.
“We don’t believe we are likely to see the true impact of WFH and the ‘new normal’ for another two to three years as long-term leases expire and we learn to live with the virus,” he said.
Still, it seems likely your new office will look much like the old one did — although it may well be a bit nicer. Commercial agents report companies that are staying put are investing in capital improvements such as more spaces for collaborative work and better technology to make hybrid working smoother.
In the U.S., there are also tentative signs that major markets like Manhattan, Chicago and San Francisco are starting to rebound in terms of activity, said Julie Whelan, CBRE Group Inc.’s global head of occupier research.
“Although many large occupiers still believe they will need less space going forward, their plans don’t seem to be as drastic as at the height of the pandemic,” she said.
More stories like this are available on bloomberg.com.