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- Office workers have been working at home en masse across the world for about a month and have been successfully maintaining their productivity, tech CEOs tell Business Insider.
- This is causing CEOs to rethink whether they really need to provide office space for everyone.
- Some CEOs are starting to think about using offices more like “flex-space” meeting rooms, rather than as permanent desks.
- One New York VC who has invested in real estate startups thinks that a whole new business model may emerge, one that’s even more flexible than the coworking model pioneered by WeWork.
- In fact, the shift doesn’t bode well for WeWork, the CEOs say.
- Visit Business Insider’s homepage for more stories.
If you are lucky enough to not be among the 22 million Americans who lost their jobs this month, chances are, you are working from home.
And if you work for a tech company or live in a major metropolitan area, chances are you’ve been working from home for a month.
Tech CEOs have noticed that their companies are still running well and employees are still productive even with everyone working from home. For instance, just this week, Oracle founder and chairman Larry Ellison felt so moved by how well his 136,000-employee strong company had been performing, that he took to YouTube to praise the videoconference tech they are using, Zoom, and to say that the company will never fully go back to just in-person meetings again.
All of this is causing at least some CEOs to wonder: why are they paying so much for real estate and office headquarters when their companies operate so well with a fully remote workforce.
“If everyone can really work at home, why do we have all these big offices around the world?” says Rimini Street CEO Seth Ravin, a software technical support company based in Las Vegas that operates 30 offices worldwide.
“Maybe you don’t need everyone having an office, right? Maybe you don’t need all that real estate. Maybe you only need half. And it’s just full of conference rooms and hotel-like spaces for those who come in and use it occasionally versus permanently based in the office,” he says.
He predicts. “You’re going to see so many companies rethinking real estate.”
Flex is in, desks are out
He says that Japan is providing the ultimate proving point. The notoriously hard-working Japanese culture centers around office life and doesn’t have much a remote work ethic. But at the urging of government officials major Japanese companies such as Honda, Toyota and Nissan have asked staff to work from home. And Japan’s Ministry of Labor has offered grants to help small and medium-sized companies retool themselves to support teleworking, reports CNN.
Rimini Street has offices in both Tokyo and Osaka. “This is changing Japanese culture dramatically because they were not a work at home culture. So I think the world will change,” he said.
Okta CEO Todd McKinnon agrees. His company grew from 1,561 employees at the start of 2019 to 2,248 employees at the start of 2020, most of them at its 207,000 square-foot San Francisco headquarters but also scattered among offices in 12 other countries.
His real estate team has not only secured the lease for that building, but had been working on grabbing more square footage in expensive and competitive San Francisco in preparation for more growth.
But now that his company has been successfully working from home for a month “this is going to lead to us having less square footage of real estate for sure,” McKinnon says.
“Our growth plans were to add a bunch more square footage, but I think we’re seeing with the productivity we’re having, we probably don’t need as much square footage,” he said. Now his real estate team is talking about turning the office “into more flexible work environments, not dedicated desks, and moving to a more dynamic, flexible work space.”
The idea is to allow employees and teams who are thriving working from home to continue, with no pressure to commute to an office every day, except for a specific need for an in-person gathering.
Not great for WeWork
To the extent that WeWork doubles down on its original, so-called “space-as-a-service” offering, where it offers companies very flexible short-term lease terms on smaller spaces, WeWork could fair well in the post-COVID-19 business world, McKinnon believes.
But, WeWork is currently struggling, not helped by the economic implosion, and has reportedly fallen behind on some of its own rent payments.
Prior to the COVID-19 WeWork was gravitating towards longer-term, more lucrative, and less-risky enterprise contracts, where it custom-designed offices spaces for large companies. Its current website is splashed with endorsements from companies like GE, BBC Royal Bank, Standard Chartered Bank, for instance.
But in the post-coronavirus world, larger companies won’t need such a real estate middleman, especially when they’re shrinking their real estate footprint.
“That’s not going to be great for the real estate business, even the WeWorks, if this kind of culture holds. You would rent less space from them than you would before,” says Ravin.
Interestingly, this could become a new business opportunity for both landlords and coworking companies, says New York venture capitalist Charlie O’Donnell, the founder of the seed-stage fund Brooklyn Bridge Ventures. Among O’Donnell’s investments is some real estate startups including like The Wing, a coworking space designed for women. The Wing has been hurting during lockdown and laid-off nearly all of its staff last week.
O’Donnell has been vocally opposed to the way WeWork has been treating some of its struggling startup tenants.
He sees real the potential for a new business model, one that involves even more flexible space than coworking, or even The Wing-like clubs.
“Maybe flexible work space is an answer, but much more flexible than that’s been offered by a coworking company,” O’Donnell says.
Instead of a permanent desk in a room, multiple companies might use a room more like a timeshare, keeping their things in lockers when other tenants used the space. He points to an office furniture company like Heartwork, which designs easily moved furniture and office cabinets on casters, as being an example of how this might be set up.
“Spaces could be built with the assumption that the same people are not in every day. Maybe they’re going to use this office only on Thursdays,” he suggests.
The one thing that most business leaders can agree on is that now that workers have gotten a taste of home offices with no commute, and CEOs have seen the money that can be saved on real estate, the status quo will shift.
“It changes real estate,” says Ravin. “It changes the way people think about what are the critical things we spend our money on.”