Saturday, June 15, 2024

People hate commuting and it means a ‘seismic shift’ is coming to commercial real estate, CEO of a flexible workspace giant says

Must read

Employees around the world were forced to adopt fully remote work for the first time when COVID-19 struck. But as the pandemic stretches into its third year, vaccines become more widespread, and hospitalization rates drop, companies have been trying to lure employees back to working in the office full-time once more. JPMorgan Chase’s Jamie Dimon has insisted that a hybrid style “doesn’t work.” Morgan Stanley CEO James Gorman says remote work isn’t an “employee choice,” and Disney’s Bob Iger has demanded that employees work in person four days a week

But despite top managers doing their best to get workers back into the office, many simply don’t want to go back to the way it was before. And it could have huge repercussions for real estate, according to the CEO of flexible workspace giant IWG. 

“A lot more people are demanding, and companies are allowing them to work close to home,” Mark Dixon told CNBC’s Squawk Box Europe on Tuesday. “This is a massive change for real estate. It’s a fundamental seismic shift where technology basically has allowed people to work from anywhere, and they are.

“There’s this assumption that people actually like commuting into a central business district. They don’t,” he added. “It’s a complete waste of time and money, and they don’t want to do it.”

Dixon’s company is of course primed to take advantage of a move away from traditional offices, as IWG (formerly known as Regus) specializes in creating hybrid workspace locations around the world. But he isn’t the first CEO to take note that a sea change is taking place in the working world. Shark Tank investor Kevin O’Leary said last week that a “new generation” of workers are refusing to go into offices because they’ve only ever worked remotely. And several companies including Coinbase, Lyft, and Reddit have switched to hybrid or remote-first work arrangements. 

But rather than despair about the office shakeup, Dixon said there are massive opportunities ahead for landlords and commercial real estate developers as they find new uses for their spaces, even if they consider getting rid of them completely. 

IWG did not immediately return Fortune’s request for comment.

Some real estate developers are already converting offices into housing units, and new residential properties are being constructed with attention to “well-lit desk space,” architect Jessica Hester recently told Talk Business. Traditional office spaces are also expected to empty out over the next 10 years. The national office vacancy rate was about 12% in 2019. By 2030, that number is expected to rise to 55% above the pre-pandemic figure, according to real estate firm Cushman & Wakefield. 

Remote work has also forced large employers like Google and Meta to scale down their office expansions, and real estate giants in New York have also had to think about relinquishing their office space holdings. 

The rise of flexible work arrangements is already costing New York City upwards of $12 billion a year, with fewer office goers in the city center spending on recreational expenses linked to venturing out of homes for meals. Shopping and entertainment have also dropped significantly. This translates to lower tax revenue for cities from charges on commuting and parking. 

But Dixon added that although employees no longer prefer coming into offices every day or as frequently as they did before the pandemic, office spaces won’t be entirely obsolete. Employees still like the “drop in” space that offices create to meet colleagues, he said.

Fortune‘s CFO Daily newsletter is the must-read analysis every finance professional needs to get ahead. Sign up today.

More articles

Latest article