Jim Kramer on CNBC Squawk Box recently rhetorically asked: will this mandated “work from home” be the Netfix for office buildings as Netflix was for movie theatres? I don’t think the analogy fits. Pre-COVID 19, tenants were laser-focused on collaborative spaces, amenity rich buildings all to foster company culture. I don’t see how technology can replace the human experience. Instead, I think we’ll see more of an evolution (versus revolution) of the workspace, including work from home as part of the strategy.
As Bisnow recently reported, CoreNet Global’s April 28, 2020 survey of corporate real estate professionals found that 69% of companies are planning to reduce their office foot print after the recent forced work from home experiment. By contrast, former Google CEO Eric Schmidt on a recent “Face the Nation” interview predicts that office space will be in greater demand due to social distancing and more smaller offices in a “hub and spoke” format. I question, will the appeal of remote work still be attractive to employees after this pandemic passes and they have a choice? While the jury is out on the long-term implication of remote work, in this post, I address the Pro’s and Con’s and what policies companies should consider implementing to have an effective work-from-home (“WFH”) strategy.
This global pandemic, which has wiped out the stock market and is pushing the US into a recession, will not only turn the tables in most office markets nationally, but I think it will leave an indelible mark on how companies use and lease office space once this crisis is over. Once we have this one under control, I am sure everyone will have in mind the future risk of another pandemic. Below is a brief outline of how I think things will change beyond avoiding handshakes.
2019 is a big year in lease accounting. In 2019 (which began December 15, 2018 for fiscal year reporters), publicly traded companies are required to comply with the new accounting standard (ASC 842) and are required to recognize leases greater than 12 months on their balance sheet. In 2021 (beginning on December 15, 2020 for fiscal year reporters), all other entities (i.e., private companies including non-profits) will be required to comply with this new standard. Note, given the challenges facing compliance, FASB recently agreed at their July 17, 2019 meeting to extend this effective date for private companies from 2020 to 2021. It is expected that over $2 Trillion will be transferred to US companies’ balance sheets. As I previously wrote (Lease Accounting Change Gets the Go-Ahead ), financial transparency is the driver of this new standard which was developed in the wake of the great recession. “We believe that this new standard is important because it will provide investors, lenders and other users of financial statements a more accurate picture of the long term financial obligations of the companies to which they provide capital,” said FASB Chairman Russell G. Golden. Now that it is official, in this post I highlight what office tenants should be doing to comply with this new standard. I am joined on this post by Mirela Gabrovska of MBG Consulting, a national expert in lease administration and auditing.
Last year a Harvard Business School associate professor (Ethan Bernstein) led the first empirical study measuring both face-to-face and electronic interaction before and after two Fortune 500 companies moved to an open barrier-free workspace. Contrary to conventional wisdom, the study found that, with the open workspace, personal interactions dropped approximately 70% while electronic interactions increased between 22% and 50%. After this study was released (which some industry professionals have challenged), countless articles have been written that the open office plan is another misguided corporate management fad and the real reason for its adoption is to reduce costs by densely packing workers into a smaller space. While there’s certainly a cost benefit to a more open plan with a smaller footprint, particularly as rents in many markets are hitting historic heights, in this post I briefly discuss how a thoughtfully-crafted open office plan can increase personal interaction and productivity while contributing to the retention and recruitment of talent.