JLL Implications of Hybrid Working_v2 2022

Learn how hybrid working affects the workplace ecosystem

JLL Global Research, 2022

Are we ready?

The implications of hybrid working

Research

How is hybrid working today?

Employees

Companies

Buildings

Cities

Environment

This report is meant to highlight the implications of hybrid working, not just on the workplace, but more broadly as well. In particular, we will cover the potential impacts on:

• Employees
• Companies
• Office Buildings
• Cities
• The Environment

As we hope you will see, the implications may be much more complex than simple headlines can convey, and we all must prepare ourselves for the changes ahead. Thank you for your partnership. We look forward to helping our clients navigate the new hybrid world.

Christian Beaudoin Managing Director Head of Global Research Advisory christian.beaudoin@am.jll.com

Hybrid working will have implications at every level of the workplace ecosystem:

The future is hybrid At JLL, we believe that decisions must be driven by data. For this reason, we have conducted frequent surveys and focus groups over the past two years, to obtain a better understanding of where the world may be headed due to the impacts of Covid-19. In every employee survey that JLL has led over the past two years, the overwhelming majority of office-using employees state their preference for a hybrid arrangement going forward, with “hybrid” generally meaning some time spent in the traditional office, and some time spent working from home or elsewhere. As shown on the following page, 55% of employees are already working in some hybrid fashion. Hybrid working has a durable presence, and there are many potential benefits that can accompany working arrangements that are more flexible, or at least less fixed. However, all decisions have trade-offs, and hybrid working is no exception. When evaluated more closely, hybrid working can have significant impacts on all aspects of our lives – from personal to professional, and local to global.

Are we ready for a hybrid future?

Dive into the hybrid working ecosystem

Hybrid working is

already here

Office buildings and investors

Companies

Employees

What now?

Environment

Cities

Incredible opportunity

Reducing carbon footprint

Diversity is optimal

Building quality matters

Employees value flexibility

Flexibility and choice for employees can have incredible benefits, but they do not come without costs.

Returning to "normal"

Hybrid working

Next steps and recommendations

Hybrid working can help reduce our greenhouse emissions, but working from home is not carbon free.

Diversity is key; of people, places, spaces, and experiences.

The risks to the office sector are real and cannot be ignored. But in disruption, there is opportunity.

Talent attraction and retention must be balanced with long-term revenue and profit targets.

ecosystem

• Risk of career stagnation and work/life overlap
• Reduced opportunities for direct mentorship and career growth
• Reduced group innovation and collaboration
• Missed, unplanned business and career opportunities

Challenges

• Potential improvements in work-life balance
• Reduced commuting, potentially improving throughput
• Increased individual productivity (?)
• Increased satisfaction when provided flexibility

Impacts on employees

Opportunites

Global actual and projected RTO

It’s happening. After two years of remote working, a significant portion of office-using employees are beginning their gradual (and partial) return to the traditional workplace. As of June 2022, global office occupancy levels were approximately 40% of their “normal” levels in 2019, with significant variance by region. As momentum increases for in-person work, the varying impacts on employees are becoming increasingly evident. Early indications are showing that employees with physical proximity to their managers are gaining exposure to project inclusion and career opportunities that are not as available to remote workers. There is a benefit to in-person collaboration that is clear, but difficult to quantify. Furthermore, many companies understand the need to accommodate remote workers for the foreseeable future. However, accommodation and career growth are two very different things. Additionally, considerable attention during the pandemic was focused on the maintenance of individual productivity while employees were remote. However, a new question is arising, particularly among young professionals: Is productivity the only goal of work, or even the primary one? For many, more important goals may include learning, growing, connecting, and serving a larger purpose through their work. It’s becoming clear that those elements may be most commonly achieved when people work together, in partnership, and in person, at least a few days per week.

Employees

• Challenges with maintenance of company culture and connectivity
• Challenges with new business development
• Challenges with new idea creation and innovation

Challenges

• Potential improvements in employee satisfaction
• Potential savings in real estate costs
• Opportunities to attract more geographically diverse talent

Impacts on employees

Opportunites

Percent increase in salary (%) employees are willing to forego for flexibility

Walking a tightrope. That may be the best way to describe the current environment for managers and company executives. Amidst a backdrop of record low unemployment and incredible difficulty in hiring, coupled with continued pandemic uncertainty, rapid inflation and geopolitical risk, the idea of “forcing” employees back into the office seems quite daunting. For these reasons, the greatest task of manger today may be figuring out how to balance the needs of their individual employees, with those of the business. Employees across all industries are indicating that they truly value working from home some of the time, with technology and finance employees stating that they value their flexibility about as much as a 10% pay increase. In such an environment, companies must determine how to maintain culture and connectivity when their people are meeting together less frequently than before. They must evaluate how to nurture career paths and ensure succession planning when employees are partially remote. And of course, they must focus on maintaining their top-line revenue growth and bottom-line profitability when they have less in-person connection with the engine of their success: their people.

Companies

• Net reduction of total office occupancy (Increased aggregate vacancy)
• Pressure on rent growth
• Lower and more volatile space and amenity utilization
• Potential long-term erosion of aggregate value

Challenges

• Top quartile buildings likely to outperform
• Best located buildings, in mixed-use submarkets, likely to outperform
• Opportunities for improved design and focus on flexibility, productivity, and experience

Impacts on employees

Opportunites

Net absorption (s.f.) in office buildings by decade built

Building quality has always mattered, and for the past several years a focus on amenities and employee experience has led to a widening gulf between the best buildings, and the rest. However, this pre-Covid trend is now magnified to an unprecedented degree. In an era where employees have more choice than ever regarding where and when they work, office buildings of low quality may face a significant reckoning. Leasing activity over the last two years has proven that tenants are willing to pay a premium for new and vibrant space. In fact, at the aggregate level, the only buildings that have seen positive net absorption over the last eight quarters are those which have been built since 2015. Many employees are stating that the effort required to get to work (dressing, commuting, childcare, etc.) is certainly worth it, when the space is engaging, exciting, and technology-enabled. But not every office can claim these characteristics. Is your space more efficient and effective than someone’s home office? Does your office provide a range of different spaces for concentration, connection, and collaboration? In short, is your building commute worthy?

Office buildings and investors

• Potential corridors of urban emptiness, decreased activity, increased crime
• Lower transit utilization
• Reduced consumption, lower tax receipts impacting service levels
• Potential increases in inequality caused by flexible hybrid workers vs. those that are tied to their physical place of employment

Challenges

• Opportunities for reinvention of Central Business Districts as Central Social Districts—more mixed use, collaborative and integrated
• Opportunities for smaller cities to attract talent and commerce, with a focus on quality of life, connectivity, and affordability
• A chance to create a more sustainable urban model, with housing proximate to workplaces, reducing commutes and allowing micro-mobility

Impacts on employees

Opportunites

Optimal urban district space use (%, s.f.)

The greatest cities on earth thrive for many reasons, but one that is increasingly clear is their diversity. This refers not only to the diversity of their people, but of the allocation of space within the city. We have found that the most productive and innovative cities have a fairly even distribution of space allocated to residential use, office use, hotels, retail, and even production of goods, with a healthy allocation toward shared spaces, public buildings, and civic amenities. Those cities which are overweighted toward only one use may have less resilience in times of change. The pandemic has taught us that cities and urban districts which rely too heavily on one or just a few of the components are at great risk in times of economic or social shock. Even two years after the onset of the Covid-19 pandemic, some central business districts which are primarily reliant on office uses are struggling to regain their footing (i.e. Chicago’s Central Loop, San Francisco’s Financial District). However, other districts which have carefully curated a mixed-use allocation of space (Downtown Austin, Seaport Boston) within a 15-to-30-minute radius, are not only recovering but thriving in the new era. Quite soon, the term “central business district” may be functionally obsolete. In order for cities to thrive, they will need to be central social districts, central living districts, central shopping districts. Really, central everything districts.

Cities

• Increased energy consumption in residential buildings
• Suburbanization increases average travel distances, shifting traffic patterns

Challenges

• Partial reduction in energy consumption in commercial buildings
• Reduced carbon emissions from commuting

Impacts on employees

Opportunites

Across a broad range of JLL surveys and external studies, commuting is the least popular part of the average employee’s in-office workday. Hybrid working, with some days spent in the office and some time worked remotely can have the significant benefit of reducing unnecessary commuting, for certain roles on some days. This partial reduction in commuting can have significant environmental benefits. The average commuter across the US and EU travels just under one hour each day—roughly 32 miles, which equates to about 3.2 tonnes of CO2 per person per year. The daily commute to and from work accounts for more than 98% of an employee's work-related carbon footprint. Working from home two days per week could theoretically reduce individual carbon emissions due to commuting by 40%, or by 1.3 tonnes of CO2 per person per year. Applying this to the 30 million employees who may now have the option of hybrid working, annual carbon emissions could be reduced by approximately 40 million tonnes. Such a reduction is a start, but there may be offsetting impacts as well. Home offices are often much less efficient than optimized corporate offices which have been designed to LEED standards. In the tracking of carbon reduction, the entire work ecosystem must be evaluated holistically.

Environment

What now?

City leaders Begin the process of evaluating your current urban space allocations. Are they evenly distributed, or do they favor certain uses? Work toward long-term master plans which prioritize diversity and resilience of spaces. Also consider whether the existing urban centers are best served when new, mixed-use “fringe” submarkets attract the greatest proportion of capital and new investment.

Employees Recognize that convenience often has a cost. Some time spent at home may be ideal for short-term work-life benefits and even for productivity. However, too much remote work may have indirect consequences on career engagement, satisfaction, growth and advancement. Be honest with yourself in balancing your immediate preferences and your future aspirations.

Employers As in all situations, communication is the key. Clear expectations and transparency can go a long way. Explain to your teams that company goals (growth, profitability) and employee goals (flexibility, wellness) do not have to be mutually exclusive. Build out workplaces and work schedules which bring teams together in meaningful ways, for training, career development, and culture building.

Building owners Start now on re-evaluating the attraction of your building in the post-Covid era. What is unique about your spaces and service delivery? What makes your building more compelling, more efficient, and more productive than someone’s home office? Now is the time to focus on differentiation in a competitive workplace landscape.

The hybrid future can provide incredible opportunities for employees, companies, buildings, and cities. However, now is the time for each to carefully evaluate the impacts that hybrid working can have in the coming years.