More than three years after the Covid-19 pandemic began, the return to the office versus working from home has yet to take hold. There is a constant tension surrounding work-from-home between management’s need for innovation and discipline versus workers’ desires for more flexible arrangements and reduced travel time. As urban planner and historian Dror Poleg likes to remind us, “commuting wastes people’s most productive hours.”
The ever quotable Elon Musk is ordering employees back, saying working from home sucks. Interviewed on CNBC, Musk told remote workers to “get off your high spirits” as others, like workers in auto factories, food service delivery and home repair, can’t work at home. , a division that he called “morally wrong”.
Aside from morality, earlier this week, asset manager BlackRock told employees “we will switch to at least four days a week in the office” starting in September. They join JPMorgan Chase, Amazon, Apple, Disney and many companies that require office work at least three days a week.
More companies are requiring workers to come in at least a few days a week. This “hybrid” style may end up as the new normal for offices, with uncertain impacts on jobs and careers, but the jury is still out.
The early stages of the pandemic saw experimentation with full-time remote work. But many senior leaders increasingly feel that having people in the office is essential to company culture and to generating new ideas and innovation.
In January, Bob Iger, CEO of Disney articulated what many CEOs feel. In a memo ordering employees to return at least four days a week, Iger wrote: “In a creative business like ours, nothing can replace the ability to connect, observe and create with your peers.” This fear of losing creativity and competitive edge, along with concerns about onboarding new employees, maintaining productivity, and employee discipline, underpin all moves to increase work in the office.
But if companies are accelerating the return to the office, why doesn’t the data on office use show it? Data on office occupancy, rental prices and employment show the constant tension between employers and employees. The indicators that we have for office work have been static for over a year and do not show a significant upward trend.
A frequently seen indicator is Kastle Systems’ “Back to Work Barometer” which measures office card entry passes in ten metropolitan areas. Those numbers are not moving much. Kastle’s most recent occupancy estimate is 49.3%, up from 42.9% at the end of May 2022, but nowhere near the 100% occupancy base just before the pandemic.
A second data source comes from Data of visits to the Placer.ai office, which suggest somewhat higher levels than the Kastle data. But the two indices do not measure the same thing, and both are what economists call “noisy” measures (with small, imperfect samples and many other problems captured in the indicator). That makes them more important for seeing trends than for high-precision measurements.
And like Kastle’s key card passes, Placer’s office visit data shows no significant increases. Their April 2023 numbers “were largely unchanged from April 2022” and “still hovering around 60% of what they were four years ago” in the early stages of the pandemic.
A third set of indicators appeals to economists: market rents, new construction and commercial office space occupancy. These market demand based indicators are also showing continued weakness.
Commercial Advantage reports that requested rents for offices increased nationally by an average of 2.3%. That may encourage you, at least it’s positive. But Consumer’s price index, a broad measure of headline inflation, increased by 4.9% over the same period. This means that office space sales prices actually fell in real dollars. In contrast, the CPI for that same period recorded an 8.1% rise in household housing costs.
The pressure to work from home in central business districts means that the rise in national office rent is actually made up of two opposing trends: rising office rent in the suburbs coupled with falling rates in the central cities. And the national vacancy rate also increased, again with CBDs the weakest performers.
It could be that the higher company requirements for office work simply haven’t taken hold yet. Or it could be that workers, especially the most skilled, educated and mobile, are resisting more office work and companies haven’t figured out how to deal with it.
All of this comes in a very tight job market, especially for workers with more education. Unemployment report from last month showed an overall rate of 3.4%, while workers with a bachelor’s degree or higher had a rate of 1.9%, an extraordinarily low number. Education levels are highly correlated with working from home, so that adjusted number is related to continued weakness in office occupancy and rents.
BlackRock’s call for more time in the office shows us one side of the coin: Employers often want employees back for reasons of innovation, culture and control. But falling real rents and continued high levels of vacancy for office space, especially in CBDs, show resistance from better-educated and better-paid workers, thanks in part to a continued strong economy.
We’ll see how this plays out if the economy weakens (or even goes into recession) under continued rate hikes from the Federal Reserve. But for now, employers may have a hard time enforcing their wishes for employees to spend more time in the office.