20 Billion Square Feet at Stake & Other Reflections on the Office’s Future

Last week I read a long viral Twitter thread about the future of the office. The thread got me thinking about and reflecting on the great report on remote work Charles Laughlin authored for Localogy members.

The thread from Chris Herd, founder and CEO of a company called FirstbaseHQ, indicates that he’s talked with more than 1,000 corporate executives to get a pulse on the state of the remote workplace. His findings include:

  • Companies plan to cut commercial office space by 40-60% which will accommodate WFH two to four days per week and in-office work one to two days per week.
  • About 30% of the companies they talked to are getting rid of their office space entirely and going remote first. 
  • They identified a number of reasons why companies were moving to a remote-first model. The two biggest are: 
    • Talent acquisition. In a remote setting, companies can hire the best person available, regardless of where they reside 
    • Cost. Remote-first is considerably less expensive, with savings of up to $20,000 per employee

Remote Work Downsides

But there are plenty of challenges ahead for the remote workplace. Some of these include:

    • Managing Remote Burnout. While productivity increased considerably during the early days of pandemic, those gains have leveled off and in some cases, the employees are facing burnout. We think this is drive by a combination of working longer hours and taking on the workloads of others who may have been furloughed or left the company.
    • Hacking the ‘Offsite’ Experience.  Another challenge is determining how best to use what little physical time teams have together. This will probably take the form of larger and longer off-sites events. Perhaps in more interesting places. Think Hawaii, the Caribbean, working ranches in the West, ski resorts for winter meetings. And if there is no main corporate site, we might need to come up with new terminology for these meetings.
    • How Much Office is too Much Office? If companies want to retain a corporate office, will they be at a disadvantage or at an advantage vis a vis their remote-first competitors? Herd claims 90% of those he’s spoken to never want to return to an office. At least not on a regular basis. 
    • Navigating Ergonomic Nightmares. WFH is, and will, cause personal injuries from rapidly configured and often ill-conceived work stations. Think back and neck issues. 
More Benefits and Unsolved Challenges
  • Many companies told Herd they are excited to “feel” good about moving to WFH models because of the potential to reduce pollution and presumably lower greenhouse gas. Herd thinks with WFH there could a reduction of 108 million tons of Co2.
  • Companies and workers are also encouraged by the reduction of up to two or even three hours of commute time. Both sides believe this will lead to happier employees. 
  • There is even pressure now among some companies to be sure they’re on the right side of the WFH vs. onsite debate. There is plenty of anxiety that coming down on the wrong side could negatively affect that recruiting process. 
  • Some respondents also acknowledge the risks involved with too little “water-cooler” time. You know those spontaneous moments when great ideas or solutions to big problems just kind of happen. 
  • There’s an emerging demand on the part of companies to have some sort of “desk time” tracking to assure employees are spending a requisite time at their desks. 
  • There’s also an expectation that WFH will lead organizations to eliminate a large chunk of middle management. 
Let’s Do the Numbers 

So I looked at all this data and did a little back of the envelope math to get a rough idea of what the world we’re entering might look like. Here are some of the data points and assumptions to consider. 

  1. In 2012 there were 87 billion square feet of office space in the U.S. Assuming square footage continued to grow, let’s imagine there are 100 billion square feet in circulation today. 
  2. Over the next couple of years, we’ll see a 20% decline in office space use.
  3. Let’s assume that on average an employee uses 250 square feet of office space.
  4. Also, let’s assume that the annual cost per square foot of office space is $36. This accounts for rates as high as $90 to $100 per square foot in places like San Francisco and New York and spaces as low as $12 in places like Des Moines, Iowa.
  5. Let’s assume the average office worker spends $15.00 per day on food and beverages. Sandwiches, salads, coffee, more coffee, and that occasional after-work cocktail. 
  6. Let’s also assume that the average office worker spends $10 per day commuting. Again, this number strikes the balance between those places that cost $50 per day to park and those where it costs just $5 per day. 

Tough Times Ahead for Some Sectors

Here’s what we learn when we take these assumptions and make some calculations. 

  1. 20 billion square feet of office space will come online in the coming months and years. (Note to investors: If you’re not invested in Class A space, there will be difficult times ahead.) At $36 per square foot, that’s a cool $720 billion dollars of potentially uncollected rent. Think about that. That is almost a trillion dollars. 
  2. There might be as many as 80,000,000 office workers either working from home or only going into the office one or two days per week. If that’s the case, imagine what that means for the local service businesses that rely on the daily worker spending $15 per day on food and coffee. That is a ton of sandwiches and coffee that will instead be made at home. Or it will be purchased near workers’ homes and not downtown. 
  3. Assume office workers go from four days a week to two days a week. This means the packed BART trains that used to move hundreds of thousands of workers from the East Bay into downtown San Francisco will see a long term drop in ridership and corresponding revenues; a similar fate will befall parking lots operators. 

When I step away from the data, it is hard to imagine the magnitude of the implications of a decline in 20% in office occupancy. The reverberations will be felt most in places like San Francisco, but also in places like Des Moines, Iowa. We’ve no doubt neglected to consider other impacts or consequences, both positive and negative. Because what we’re about to transition through was really unimaginable just six months ago. 

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