Flexible work models that allow employees to have a say in how they work may be the way of the future. And according to recent studies, they can also have financial benefits for companies.
For commercial office space owners, 2024 started with some bad news: according to Moody’s Analytics, the office vacancy rate in the US rose to 19.6 per cent at the end of 2023 - the highest level since 1979.
One reason for this is today’s new hybrid and flexible working models, which allow employees to spend less time at the office. What began as quick-fix home office solutions during the pandemic have since become the norm. Broken supply chains, inflationary pressures and fears of a recession can no longer explain away the rise in office vacancies. The more plausible explanation is that hybrid and flexible work models have found lasting favour with employees, resulting in a reduction in workers’ minimum mandated office presence and the need for office space. Or as Moody’s puts it: this has “muted office demand”.
Over the next two years, loans in the sector running in the triple-digit billion range are due to mature. But the Moody’s article doesn’t mention an impending systemic credit crisis - office space only accounts for a fraction of the more than USD 1 trillion US commercial property market. Plus, the vacancies are already partly priced in to leases. Nevertheless, the US trend of decreasing demand for rental office space is remarkable and, above all, irreversible.
At least according to research by Scoop, a San Francisco-based start-up that operates a hybrid work platform. Initially, its founders, brothers Rob and Jon Sadow, had wanted to create a ride-sharing and carpooling app that would enable employees to travel to work together, thus reducing costs and their environmental impact. When the pandemic hit, the brothers shifted their focus to digital management for hybrid jobs and gigs.
Their decision paid off. Scoop has been collecting and analysing the work models and office day policies of around 7,500 companies (554 of which are publicly listed) since last year. The resulting Flex Index aims to give employees a better understanding of what to expect from potential employers. The index also provides insights into office space use. For example, of the listed companies in the index, only 17 per cent still require employees to be fully present in office, with 55 per cent preferring a hybrid solution made up of remote and on-site work; and 27 per cent are “completely flexible”, in other words, they allow their staff to choose freely. Gallup, an analytics and advisory company, came to a similar conclusion: only around 20 per cent of people currently work fully on-site (compared with 60 per cent before the pandemic). Employees are demanding more flexible work models: slightly more than half the respondents in a recent survey preferred a fully remote job, while 46 per cent opted for hybrid models. And almost two thirds of respondents were prepared to accept less pay in exchange for more flexible work.
For 2024, Scoop predicts that more than two thirds of all companies in the US will adopt flexible and remote work models. The frequently-expressed hope by company CEOs for a return to office - to boost productivity - has so far remained just that.
New findings could give the flex-trend additional momentum. According to the most recent Flex Report, companies with fully flexible work models saw revenue growth of 21 per cent over a three-year period, compared to 5 per cent for companies with traditional models (any savings from lower office leasing expenses are not included in the calculation). This result held up even when companies from highly tech-savvy sectors were excluded; the remaining fully flexible companies still outperformed by 13 percentage points. A recent study by the University of Pittsburgh made a similar point: according to researchers at the Katz School of Business, return-to-office mandates had no impact on the performance of a sample of S&P 500 companies – except for lower employee satisfaction. So could fully flexible work policies be the key to better performance?
That would be a premature conclusion. In its study, Scoop does take a methodologically differentiated approach and tries to avoid sector biases or biases related to company structure to ensure its database is representative. It also avoids potential conflicts of interest to the greatest extent possible (after all, its business model centres on access to its database, which contains information about the prevalence of different work models) and works with experts and academics from Stanford University and New York University. But despite all of this, the authors of the Flex Report only refer to correlations, not to a causal relationship between a work model and increased revenues.
Even after untangling the possible correlations, there is still a strong argument for flexible work models. If employees have the freedom to choose how they work, they are more satisfied.
This in turn leads to employees identifying more with their employer. As a result, loyalty, commitment, motivation, creativity and productivity increase. For companies, this can give rise to more innovation and greater efficiency and competitiveness, and ultimately higher revenues. Ideally, this creates a virtuous cycle for employees and the company that benefits both. Companies would therefore do well to cultivate a culture of trust fuelled, among other things, by greater freedom and flexibility for employees in determining how they work.
In this scenario, employees are given more say and power within a company. Futurist and author Julia Hobsbawm calls this new form of employment “flexetariat”, a pun on proletariat. In the Flex Report, Hobsbawm says that “flexibility and freedom to choose is a permanent shift for workers.” And many other experts would agree; the work models popularized during the pandemic have long become a normal part of working life, and look like they’re here to stay.
So does this mean that the real estate sector will face challenging times? While apps like Teams, Slack and OneNote have replaced the need for an office water cooler or coffee machine, they haven’t replaced the team building power of face-to-face encounters. The physical office and employees’ on-site presence are pivotal when it comes to building trust and positive group dynamics. And as long as that’s the case, the commercial property market has a role to play.
Freer and more flexible work models have become part and parcel of the day-to-day reality at LGT. David Wetter, Business Area Head Private Banking at LGT Bank in Zurich, explains the changes and benefits this brings for the team and for clients, and why the physical office is nonetheless here to stay.
We’re on a virtual call, but you’re currently on-site at LGT’s Swiss head office in Zurich. How often are you there?
David Wetter: I stop by every day. I would say that my remote work to in-office ratio is about 40 to 60.
As someone who leads a team, you need to be present at the head office. But what about the rest of the team?
It depends on the person’s role. For employees who provide assistance or support, for example, in managing the day-to-day business, handling client enquiries and project management, we’ve introduced a rotating schedule consisting of a combination of in-office and working from home days. Our relationship managers, who are on the go much more, don’t have this. When you’re advising clients, being in direct contact with people is paramount.
What are the biggest differences of the more flexible office culture that emerged after the pandemic?
Video calls and being able to share documents and slides virtually has made preparing for client meetings much more efficient. The more flexible model has boosted the quality of our work and collaboration enormously in that respect.
Does your team share that view?
Yes, employees don’t want to have to work from home all the time or have to be in the office 100 per cent of the time. They appreciate flexibility, and people are happy to have the opportunity to find out where their personal sweet spot is. That’s why now, we almost only use video, sharing and group chat tools such as Teams or OneNote for team meetings and discussions. I don’t need to know whether my colleague is sitting in an office one floor above me or at home in her kitchen.
You’ve created a culture of virtual trust. Does that make a physical office redundant?
People still have spontaneous chats, for example, when they’re fetching a coffee. And that’s one of the reasons employees still like coming into the office. As much as I appreciate flexible work models, in my experience, meeting people face-to-face and having personal encounters is important for relationship building and a company’s culture of trust. You need both.
