Following the COVID-19 pandemic, there was talk that if employees wouldn’t return to a company’s downtown headquarters, they’d be happy to work in suburban satellite offices as a way to avoid the commute and be closer to home. But that idea hasn’t really panned out in many suburban areas.
“I don’t see anything changing unless and until there is a material shift in the economy. In fact, I see the trend getting stronger and I see downsizing by downtown office users continuing.”
One of the hardest-hit areas has been Chicago, which posted a suburban office vacancy rate of nearly 30% at the end of September, up from 27.3% a year earlier, according to real estate services firm JLL. One reason for the high number of vacancies may be that workers are digging in and demanding to work from home.
One recent estimate shows that 13% of full-time employees work exclusively from home, while 28% use a hybrid model. These estimates come after many months of corporate efforts to get employees back in the office. Scotsman Guide recently spoke with Richard Traub, partner at the real estate practice of Smith, Gambrell & Russell LLP, for his perspective on the suburban office dilemma and what it might take to break this paradigm shift of employees working from home.
What is your perspective on the suburbs being new centers for satellite offices?
I think the original assumption was that, following the pandemic, many employers realized that their employees didn’t want the long commute involved with coming back to the office. So, they thought, ‘We’ll bring the jobs to the employees by opening suburban offices.’ But I don’t think the employees have materialized, and now some suburban office owners are caught up in the same paradigm shift that office owners in the city are facing.
The idea of employees wanting to work from home seems to have either gotten stronger or held its ground. I think that instead of even commuting a shorter distance to a suburban office, people want the efficiency and flexibility of working from home.
What will it take to lure employees back to the office?
The problem is that you try and mandate or enforce a return-to-the-office policy, even one that could be considered flexible and not onerous, and people are simply going to vote with their feet and leave. They are saying, ‘If you mandate that I come back to the office, even if it’s in a more convenient location in the suburbs, I’m simply not going to do it.’ Perhaps a satellite office with all the latest and greatest amenities would change the equation. But with the unemployment rate at about 3.8% and businesses fighting for skilled workers, the employee still has a lot of negotiating power.
How do you expect businesses to deal with this paradigm shift?
You know, I’ve been wrong 4 billion times in the last few years. When COVID hit, I thought we’d be back in the office in three months, once I realized it was going to be with us for a while. Then I thought the vaccine would bring everybody back. When that didn’t work, I thought there would be a flight to the suburbs and satellite offices. None of those things have completely proven to be true.
My theory is that a portion of the employees of the world have the leverage right now to dictate where office work will take place. And they are voting that it take place at home. I think it’s going to take a seismic shift in the marketplace to change that dynamic, such as the unemployment rate has to rise dramatically and technology jobs have to disappear. Then the companies will be able to dictate that employees have to be in the office, or they won’t have a future with their company.
How companies deal with this issue really depends on which industry they are in and the power of the company. J.P. Morgan Chase, for instance, is demanding employees come back to their downtown offices. They are a major financial corporation, have immense power and can do that. But a law firm, for instance, has to be very careful about the demands they place on the members who pretty easily can move to a different firm or city.
What do you see happening in the coming year?
I don’t see anything changing unless and until there is a material shift in the economy. In fact, I see the trend getting stronger and I see downsizing by downtown office users continuing. I see more businesses shifting to newer buildings with more amenities in downtown Chicago, where I’m located. As I’ve said, the whole office situation is just a reflection of the overall economy and the power of the employee right now. We’ll see if and when that changes. ●