I have written extensively about the one large hole in construction that has put a lid on a certain sector of concrete production, and more and more news continues to cause worry about its future: the office space industry. If there is one legacy from the pandemic that may linger for years to come, it is the Work-From-Home/Hybrid Work/Return-to-Office struggle that corporate America is wrestling with, and mightily.
Yes, I and many others wrote about Walmart’s symbolic move back to the office, when they announced they were laying off hundreds of white-collar workers, and calling back many more in an effort to improve team collaboration, and get the most out of their employees. But so far, big steps to bring employees back to the office have been the exception, and not the rule.
Remote work may have taken off four years ago, but the evolution of hybrid work is still in its early days, and managers are having the hardest time adjusting. A full 85 percent of U.S. organizations polled have implemented hybrid work, and occupancy across offices in major U.S. cities is stuck at about 50 percent of pre-pandemic levels. Further, 74 percent of companies have changed their hybrid work policy more than once since 2020, according to one human resources study. That share reflects organizations that have added in-office days, scaled them back, or both. And the study goes on to report that 67 percent of employees say they are satisfied with their hybrid work policy. But those who aren’t satisfied are willing to go to drastic measures to find a better fit, as 20 percent of workers say they’ve considered quitting their job because of their current hybrid setup.
Happy or not, workers admit big pain points persist, with productivity being their biggest challenge with hybrid work. Many say they don’t have the right technology or training to work well with their team members across different locations, which stifles their innovation. Less than half of U.S. workers say their workplace has hybrid meeting and working guidelines to begin with. Meanwhile, miscommunication and feeling disconnected from colleagues are their biggest frustrations with hybrid schedules by both workers and their supervisors, and leaders at the top of organizations who are setting rules around hybrid work are struggling the most with it, according to the study.
Working in a hybrid setting may be more challenging for leaders who oversee many team members if they don’t have good systems in place to gauge productivity. The fact that executives who are often the ones setting the policy still have a relatively high level of dissatisfaction is indicative that we have not yet learned how to operate in a hybrid workplace effectively.
OCCUPANCY TOLL
The economic impact of this on the commercial office space industry is catastrophic. In the not-too-distant future, almost one-quarter of all U.S. office space may be vacant. And if Work-From-Home persists, wavering demand and increased borrowing costs that have slammed office valuations, especially among older buildings, means values will be further decimated, according to one major ratings agency. When combined with the impact of lower rents and lease turnovers, the vicious post-pandemic cycle will reduce revenue for office landlords by as much as $10 billion. That in turn could translate into a quarter-trillion dollars of property value destruction, according to the ratings agency. The figures illustrate the gloomy prospects faced by property owners and lenders as employers continue to jettison square footage. The ratings agency states the argument for maintaining, or even increasing, remote work practices remain compelling for many businesses; if productivity remains stable and costs can be reduced by forgoing physical office spaces, the rationale for mandating in-office attendance is negatively affected.
This is all troublesome for the concrete industry, as office space construction over the decades has accounted for millions of cubic yards of production, a sector of concrete consumption that has dried up completely. Even if the Return-to-Office movement is ultimately successful, it will take years for the office space industry to recover. Fortunately, new forms of construction such as data centers and distribution warehouses are backfilling some of this lost volume.