Is the office over?
Working from home is here to stay, but most businesses see value in having workplace hub
Massive insurer Liberty Mutual often advises in its commercials to “only pay for what you need.” That’s exactly what the company did in South Whitehall Township.
With the majority of its 140 workers at 5050 W. Tilghman St. already transitioning to work from home, Liberty Mutual announced in October it would exit its lease at the suburban office building by early 2020. The insurer did, however, keep some space there for a 25person sales team.
“Even prior to the coronavirus pandemic, ongoing changes in our work environment had resulted in an increase in excess office space across several locations,” Liberty Mutual spokesperson Glenn Greenberg said. “To help decrease costs and improve competitiveness, we identified opportunities to reduce unused space, while maintaining what we need.”
More companies are now evaluating what they need in office space, an assessment forced upon them by a pandemic that could accelerate the work-from-home trend. This story, in fact, was written from a home office, after The Morning Call’s parent company on Aug. 12 announced the newspaper would permanently vacate a downtown Allentown building where much of its leased space went unused.
To this point, however, many Lehigh Valley companies remain in wait-and-see mode, negotiating rent deferrals and lease extensions with landlords as they determine long-term needs. Unsurprisingly, the pandemic has slowed office real estate activity across the Lehigh Valley and beyond as businesses press pause on expansions amid the uncertainty.
While it remains unclear whether momentum could stall in downtowns across the country, Allentown’s largest developer said it remains confident in the center city and is in talks with prospective office tenants — some of which are willing to leave their aging offices early in favor of new spaces with enhanced health and wellness features for employees.
Plans also remain unchanged
at one of the area’s largest construction projects: the $400 million Upper Macungie Township headquarters of Air Products. After some delays, the company hopes to complete construction next summer on its new home, which will be a modern, technology-enabled campus with touchless and distancing capabilities “designed to uphold our people’s health and safety while collaborating productively,” said spokesperson Art George.
Work environments are changing, trending toward more flexible options in many cases.
In a survey of 126 real estate executives, half of which were associated with Fortune 500 firms, commercial real estate services firm CBRE found 70% of respondents will allow at least a portion of their employees to work remotely full time, while 61% indicated all employees would be allowed to work outside the office at least part time. Still, 41% said the importance of the physical office space will decrease only slightly, while 38% said it will remain as significant, if not more so. For the offices that remain, a debate awaits about whether the shift to open floor plans is appropriate, given heightened health and safety concerns.
Lehigh Valley economic development officials are hoping the changes benefit the region, especially if companies decide to relocate certain business functions from major U.S. cities to more affordable secondary markets. At minimum, the pandemic is forcing companies to consider the benefits of flexible work arrangements, warming them up to the idea of remote employees and widening the talent pool beyond geographic borders.
“I think we’re really interestingly positioned in the Lehigh Valley to be an attractive option for progressive companies,” said Matthew Tuerk, vice president of business attraction, retention and expansion at Lehigh Valley Economic Development Corp.
Several large companies across the country already have announced permanent changes to their work environments. Facebook, for one, has said half of its 48,000 employees could be remote within the next decade. Twitter, too, told workers they could continue working from home forever, if they desired.
Then there’s the case of Washington outdoor retailer REI, which decided to sell its nearly complete, never-used headquarters in favor of multiple satellite offices for employees wanting physical office space.
Remote work, then and now
All of this, of course, doesn’t mean the office is dead, though it can be painful for businesses to think about the money spent on rent while nobody is using the space.
“While some businesses and some jobs will likely thrive in this new remote work environment, you really need to dig deep and think about whether that’s the right solution for your organization,” said Tina Hamilton, president and CEO of myHR Partner Inc., a Lehigh Valley human resources outsourcing firm with clients in 26 states.
Companies have gone remote before, only to revert to the office.
IBM Corp., for instance, once had 40% of its employees stationed outside company offices, but the technology giant called workers back to offices three years ago to rekindle shoulderto-shoulder collaboration and improve financial results. Yahoo eliminated its work-from-home policy even earlier, in 2013. Insurer Aetna, too, reduced its remote work policy in 2016 to boost collaboration and innovation.
Aetna, which has hundreds of employees at a call center in Bethlehem’s Lehigh Shopping Center, declined to participate in this story.
Hamilton, thinking about her company’s office space in Upper Macungie, decided to survey her 26 employees. Except for two workers who wanted to stay remote, the remaining staff all voted for a flexible option, a mix of office and remote working, she said.
Having a remote work option can help companies reach a larger pool of job candidates, but Hamilton said many workers still crave collaboration with colleagues.
“There’s things in person that are not going to happen in a Zoom call,” she said. “Without connection, what do you have? Just a job, and that’s not going to maintain people in the long run.”
That’s why companies need to use the pandemic as an opportunity to evaluate internal processes, examining software that enables collaboration, checking in on employee wellbeing and revisiting job descriptions to ensure the organization is effective across remote work, office work and a mix of the two, said Ozias Moore, a Lehigh University management professor whose research spans organizational behavior, human resource management and team effectiveness. If a company determines it’s going to trim real estate costs, Moore said some of the savings should be spent on optimizing the employee work experience, so remote workers don’t feel left out from providing the same input as their office colleagues.
“The organizations that are going to be most effective in this pandemic and after are the organizations that quickly come to the understanding that we’re not going back to what was,” he said.
If companies force employees to return to the office without giving them the option to work remotely, Moore said it could hurt their ability to recruit and retain talent.
In the past, he said, decisions to return to the office by companies such as Aetna, Yahoo or IBM came amid a CEO change or in an effort to boost lagging performance, with those businesses defaulting to an old paradigm that believed remote work couldn’t be productive or that it dragged down results. The mentality surrounding remote work in the past also created hostility among a class of employees trusted to work remotely and others who companies believed had to be observed to be effective. Moore sees that changing now.
“This pandemic has forced organizations to make that transition and allows them to have evidence to now support their future decisions,” he said.
Decision day
Some companies haven’t wasted any time making future office decisions.
Amazon, for one, plans to invest $1.4 billion in new offices across six U.S. cities, including New York City, where the company will create 3,500 tech and corporate jobs. Amazon will not move people into any of the new spaces immediately. For example, the New York City building won’t start operating until late 2023, meaning it’s too early to know how the offices will be designed.
Unlike the world’s giants — the Facebooks, the Amazons — many of the Lehigh Valley office employers aren’t pulling the trigger yet on long-term real estate decisions.
At the start of the pandemic, many of the conversations between tenants and landlords surrounded lease terms and rent deferrals. Companies with leases set to expire negotiated one- or two-year extensions, giving them a longer runway to weigh long-term office needs, said Jody King, first vice president at CBRE.
“Most conversations are what are our office spaces going to look like in two years when our lease comes up,” said King, based out of CBRE’s Upper Macungie office.
The demand King has seen over the last six weeks has come from small companies, signing, on average, three-year leases for space as small as 1,000 square feet. For many of the midsize and large area employers, she said it’s too early to tell what they’ll do long term.
One company that made changes to its future office amid the pandemic was Buckeye Partners, which joined Jaindl Land Co. at a July groundbreaking for the four-story Hamilton Commons office building in Lower Macungie Township.
Originally, a restaurant was planned for the building’s first floor. But due to the pandemic, Buckeye plans to occupy the entire building and provide an employee-only cafeteria, allowing the company to be the sole tenant with only their employees coming in and out. King, who represented Buckeye in lease negotiations, said the company should be moving 200 employees into the building around fall 2021.
The downtowns versus the suburbs is another narrative likely to reemerge, with companies weighing single-story or two- or three-story suburban office structures to avoid multistory elevators or public transportation.
But in CBRE’s survey, which closed in June, fewer than 1 in 10 companies was considering leaving high-density urban cores. One-quarter, however, was exploring suburban satellite strategies.
Even amid the pandemic, City Center Investment Corp. is still seeing interest in downtown Allentown office space. Jarrett Laubach, City Center’s leasing director, said prospective office users have placed more weight onto a building’s health and safety features, ranging from the air quality to cleaning frequency. Companies looking for new space also seem content to keep employees working remotely until a building is ready, he said, citing recent conversations with two office prospects.
“I think that’s telling and provides a window into how people are thinking of office space moving forward,” Laubach said.
With many businesses taking a cautious approach on their future needs, City Center President and CEO J.B. Reilly said that’s forced his company to push new office construction a little further into the future.
City Center aims to get 50% to 60% of an office building preleased before starting construction, but many businesses have paused those commitments as they wait for the pandemic to end.
If the demand is there, Reilly expects to start construction on two office buildings in 2021: a six-story, 100,000-square-foot structure at 932 W. Hamilton St., and 1 Center Square, a 16-story office tower at 702 Hamilton St., where the Wells Fargo bank building stands on Center Square. When Reilly unveiled plans for 1 Center Square in December, the hope was to start construction this fall on what he believes will be the Lehigh Valley’s signature office building.
None of City Center’s office tenants, with the exception of The Morning Call, has announced plans to exit their leases, he said.
Reilly expects remote options will remain a part of work culture, which will ultimately mean most businesses will require less physical office space to do the same tasks as before the pandemic.
But he doesn’t see office space going away.
“I think most businesses have taken the position that the safety and well-being of our employees comes first and if we can keep the wheels on, so to speak, and operate remotely, that’s what we’re going to do,” Reilly said. “But at some point, as we transition out of this pandemic into a new normal, things like innovation, new business development, growth, productivity, those things will become more of a focus like they traditionally have been. And then, a thoughtful analysis will be made as to what the future office needs of a certain company will be.”
Seeking a return to in-person collaboration and innovation, Reilly said City Center’s 70 employees have been back in the office since June.
For many others, a potential return date looks murky.
At Liberty Mutual, the 25 employees who typically use the South Whitehall office also have been working at home during the pandemic.
Guided by the employees’ sentiments and other factors, Liberty Mutual said that team will be invited “back to the office when it is safe to do so.”
Whenever that is.