COMMENT Real estate occupiers all over the world are analysing how they can shed surplus office space after the pandemic with the rise of working from home – but a more obvious solution which can deliver rapid savings is staring them in the face.
This year has seen a slow increase in the return to the workplace as lockdown restrictions begin to fade from memory, but levels of office occupancy have now levelled off.
The hot summer, a rise in Covid infections or people going on holiday have all played their part, but there is a growing awareness that 35% office occupancy across the week looks increasingly like becoming the new normal.
The consequences of this realisation are already profound. Both Bank of America Merrill Lynch real estate analyst Marc Mozzi and his Jefferies counterpart Mike Prew have seized upon this in recent weeks in bearish research notes, with real estate shares suffering as a result.
Mozzi even compares the current situation to the mid-1970s, early 2000s and the 2008 global financial crisis and predicts similar price falls for offices now as tenants exit leases or downsize their space.
Developers and owners point out that office space was only ever 60% occupied, with people travelling or on holiday, but it is finally becoming clear that we are looking long-term at offices being roughly half as busy as they were.
What adds to the complexity of the situation, however, is that on Tuesdays, Wednesdays and Thursdays, offices are by common consent 50% full, compared with the pre-pandemic 60%.
It is on Mondays and Fridays that offices become deserted, at 5-10% occupancy, leaving occupiers with the difficult conundrum of needing office space for three days a week but finding it surplus to requirements for four days a week, counting weekends.
Think the unthinkable
So my advice to occupiers is to think what three years ago would have been the unthinkable: shut down those empty office floors from Thursday night to Tuesday morning.
The savings would be significant – and here’s why.
An occupier would save 20% of their cleaning and maintenance costs because they had no need for this on Monday and Friday.
More significantly, they would also save 10% of their power costs. It wouldn’t be a 20% saving because a minimum base level of power would be needed to power servers, but at a time of soaring energy bills this would be a big boost to the bottom line.
Air conditioning could be cut as a key feature, and there would also be savings on other utilities such as water.
But won’t the office be freezing when the team return on Tuesday, people will ask. In modern offices this need not be a problem – the heating could be turned on at 6am rather than the usual 8am.
While the occupier’s rent bill would remain the same, we calculate that if, for example, they had all-in property costs of £65 per sq ft the saving could be as much as £5 per sq ft by shutting down space on Mondays and Fridays.
At Ecolibrium, where we advise some of the world’s biggest occupiers and property companies on how to identify, plan and operationalise their net zero ambitions, we are already aware of large corporates shutting down office floors on Fridays.
While many organisations are giving serious consideration to the four-day week spread across different individuals over five days, others are exploring the three-day weekend.
Data-driven decisions
Any company exploring how to optimise the use of its office space needs to be measuring its use of energy across its operations, and the machine-learning algorithms that we deploy and our flagship internet of things solution SmartSense are helping companies to make these decisions.
There is also a strong sustainability argument for shutting down office floors, with power currently being wasted on the small number of people in the office on Mondays and Fridays.
People returning to the office on Tuesdays, Wednesdays and Thursdays have relished the experience, and I applaud that: collaboration and supporting the growth of young team members is crucial and a full-scale retreat from the office would be a disaster both economically and socially.
But why continue to pay for expensive power and maintenance of office space on Mondays and Fridays when it is clear that so few people will be there?
Yash Kapila is head of commercial real estate at Ecolibrium
