Over the last few days, a number of write ups & news articles have popped up in the media highlighting the danger to the corporate real estate business due to the COVID crisis. Pinterest just spent USD $90 million to terminate a 490,000 square foot lease citing a move towards more remote work. In Australia, Telstra directed all staff to work from home, and so did Google and a number of other organisations. Real estate moguls have started a “back to office” campaign, with senior executives requesting blue chip companies to bring their employees back to the office. Their argument is that it is safe to do so, and must be done to keep businesses alive. Some are even calling it the patriotic thing to do.
The fundamental flaw in this argument – it is all about why commuters must make an effort so that real estate + support services survive. The question they should be asking is, “What can I do different that brings people back to the CBD and the offices?” Its sales 101 – Solve the customers’ problem.
Employees prefer working from home because it allows them to spend more time with family, less time travelling, zero dollars spent on coffee/lunch/parking and avoid being crammed in public transport or traffic. Microsoft Teams, Zoom & Google Meet are the new permanent meeting rooms.
The big players have asked their employees to work from home until further notice. It makes economic sense for them too. We can expect most companies to cut down their office footprint by 50%. The savings they gain through lower lease expense will be spent on building better communication networks, ramping up staff numbers and business development. I agree that a 100% remote staff plan will not suit large organisations. If they can get 50% of staff to work from home every day – that is massive savings.
So what about existing businesses in the CBD? They will move to the shopping centres in the suburbs. Think of a world where most people work from home, and COVID no longer exists. The money usually spent on travel/fuel/parking and eating out at the CBD will shift to your local shopping centre. Companies such as Westfield have an opportunity to transform their shopping centres into co-working spaces.
Real estate leaders expecting commuters to solve their problem is disappointing and this pandemic has exposed the lack of innovation in the corporate real estate business. Blockbuster was replaced by Netflix, Music CDs by online streaming services and libraries by the internet. The cheese has moved.
It’s time for these real estate moguls to stop complaining, and start investing in new business models. To quote Jack Welch, “Change before you have to“