HAS JACK DORSEY ENDED OFFICE SPACE FOREVER?
Written by: Cal Axe
As a Brokerage Associate, Cal Axe specializes in commercial office leasing, sales, and occupier services in the greater Columbus area. Before his career in brokerage, he joined Colliers as a research analyst: a position that requires extensive knowledge of the Columbus office market. His experience in research and brokerage makes him extremely knowledgeable in the industry. Keep reading to get Cal’s take on how the future of office space as we know it.
Jack Dorsey’s influence over Silicon Valley is often called “cult-like.” He may have earned that alias with his Tom Hanks Cast Away beard and a 10-day silent meditation retreat in Africa, but when he talks, business leaders listen. So when Jack blasts an email to his Twitter employees declaring that everyone can work-from-home indefinitely — that puts the future of office space on the hot seat, indefinitely.
Since Jack’s email last month, other companies have signed their own declaration of office independence. In the tech community, Google announced that they will continue to WFH through 2021. OpenText will eliminate 50% of their worldwide offices, and Mark Zuckerberg said that half of Facebook’s workforce will permanently WFH over the next 10 years.
“Facebook started in a dorm room and will end in a dorm room.”— Mark Zuckerberg
Ok, he didn’t actually say that…
Now I’m suddenly tasked with deciphering the real estate implications of these new workplace strategies. Will anyone lease office space ever again? Should I find something else to do?
I’ve concluded that office space isn’t going anywhere, and that my TikTok influencer career can wait.
Three years ago, I was told that office brokerage was a mistake. It was at an Ohio State football tailgate, and a guy with an experienced commercial real estate background said that office space was dead and that I should consider leasing warehouse space to Amazon instead.
I was perturbed in my Uber home — Baker Mayfield shredded our secondary and planted an Oklahoma flag at the 50-yard line. I was also in self-doubt about my career path because I knew the guy had a point. I had read the same report from CoreNet Global: In 2010, the average square foot per employee in North America dropped to 225; in 2012 that fell to 175 square feet; by 2017 (the time of the party) the number was 151 square feet.
Even before COVID, companies were condensing, leasing less space, and pushing remote work to recruit globally and reduce locational dependency. Twitter, for example, announced back in February their intention to “build support for remote talent.” Jack Dorsey told his shareholders during an earnings call, “we have to build a company that’s not entirely dependent on San Francisco.”
And yet, office occupancy rates in the US climbed to all-time highs between 2010 and 2020. According to commercial real estate firm Colliers International, occupancy increased 4 basis points over the last decade and recorded a historic 88.4% US office occupancy at the end of 2019. Average rents also increased by 22% during that time.
An inverse relationship between space per employee and the demand for office space.
There’s an article from Economics21.org that talks about office space in Manhattan post COVID. Specifically, how some publications are running with the “lump-of-office demand” fallacy, or the idea that if “big companies need less office, the space will just sit empty,” and that landlords are screwed.
The article suggests that this is the wrong angle. Companies will use advanced communication tools like Zoom and file sharing to reduce real estate footprint and operating costs. As efficiency increases, companies become more productive and can earn profit. Economic growth helps new businesses start up and levels the demand for office space.
If that’s true, then the question becomes whether there’s still value in physical space. To me, the answer will always be yes. Ideas are crucial to companies (now more than ever), and idea generation breeds from random interactions and collisions of different perspectives. The office is like Murphy’s Law in action, you need space for randomness to occur. Zoom and virtual meetings are fantastic, but there’s not enough room for error that so many times lead to creation.
There’s also value in location. Advanced companies want to be near a highly-skilled workforce, and a highly-skilled workforce wants to be near jobs. I’ll add to that: the workforce wants to be near jobs, culture, art, entertainment, ideas, history, and friends. Economics21 calls this a “virtuous cycle that has served the city well.”
The workplace will evolve. CEOs like Jack Dorsey will scratch their beards and invent workplace strategies that ensure maximum productivity and safety — all for the better we hope. But companies will continue to find value in physical space and face-to-face interactions. The office will be different, but it’s not going anywhere.
Read more of Cal’s thoughts and ideas on Instagram.