Written by Gabe Burke. Edited by Sharon Simonson.
Real estate portfolios must be restructured. To delay no longer makes sense. When the pandemic began, no one could predict the future of the office. Most real estate decisions were put on hold. The choice was justified by the hope that business would soon return to normal.
But we have learned something since March 2020—we will never use the office as much or as often again. This conclusion is well supported by new research. Certainly there are many people who can’t wait to come back, but it won’t be like it was. We know too much. We know the freedoms of flexible work. We have experienced the safety and the convenience of choosing our daily location. Most of all, we feel empowered. With only a laptop and a phone, we can accomplish the same or more from almost anywhere. A significant increase in hybrid work will be permanent. That means more desk sharing, which in turn means less office space. For many businesses, it is time to rationalize their real estate and to capture the savings.
Most companies are still waiting. Although they have designed robust remote and hybrid workforce strategies, their real estate footprint remains mostly untouched. Empty spaces have been held as-is and expiring leases given short-term extensions. Most have chosen to “kick the can down the road,” which feels safe. In many cases, to delay a decision is to avoid a mistake. There is comfort in that. But delays don’t come free, and the bill has started to accrue.
The confusion centers on risk. Many business leaders are afraid to relinquish space. They might need it later. But the risk is vastly overestimated, and the cost is no longer justified. For most companies, it is unlikely they will need all they have chosen to maintain. And if later they discover that they do, it will not be a challenge to acquire more.
Delays don’t come free, and the bill has started to accrue
Office space will not experience its pre-pandemic occupancy rate again. Regardless of being vaccinated and feeling safe, people simply don’t want to return at full capacity. In a recent Accenture study, those who had a hybrid work model during the last two years enjoyed better mental health, stronger work relationships, and were less likely to experience burnout than those who worked onsite. A full 83 percent identified hybrid as the optimal work model for the future.1 In the same study, access to technology was reported as the main reason employees use the office, but that need will decrease as home and mobile connectivity improves.1 A survey released this month revealed that more than half of remote workers might quit if forced to return to their office before they feel ready.2 The CEO of Gallup recently wrote about his firm’s research. Gallup foresees a significant, long-term decrease in office use.3
In the months that followed the initial lockdowns, many leaders speculated that we would resume “normal” office practices within a year. As I write this, it is January 2022, and we are not even close. It is clear that if those in the C-suite knew then what they know now, they would have immediately begun to reduce their real estate assets.
A substantial amount of office space is now functionally obsolete. In Gensler’s latest Design Forecast, many firms say they plan to reduce the number of individual workstations in exchange for more collaborative and social areas. The forecast recommends space that is designed with a focus on how to strengthen relationships and create shared experiences.4 At Accenture, we have begun to redesign our corporate offices to sync with the increase in flexible work. We will decrease desks, focus rooms, and private offices while we increase social and collaborative space. Most workplace strategy experts agree that office design should change, which further decreases the value of holding empty space.
Leaders must understand the levers they can use and how to pull them.
Companies should move aggressively to streamline portfolios. At its most basic level, real estate optimization is about supply and demand—how much space a company has compared to how much it needs. When a major imbalance has been identified, the next steps are to create a goal and to build a roadmap to achieve it. Leaders must understand the levers they can use and how to pull them. Portfolio strategy, facilities operations, and the organizational model are key components of corporate real estate. Each has been fundamentally changed by the pandemic, and each represents an opportunity to reduce cost and drive efficiency. Portfolio strategy must be reshaped to pare space and to improve flexibility. Facilities need a variable output model to meet the new, variable demand. The organizational model requires greater transparency through all tiers of service delivery.
Real estate is often the second highest cost for a business, after payroll. Since the pandemic began, the cost to hold empty space has undermined financial performance. It is now riskier to wait than to act. It’s time to send this black hole back to outer space.
Gabe Burke leads Portfolio Strategies for Accenture’s Real Estate & Workplace Solutions consulting practice.
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