Let’s Get Real Episode 32: LinkedIn Live: Has RTO Flatlined? Leveraging Workplace Data to Boost ROI

Key Takeaways & Discussion Points 

• Is employee satisfaction bad for the bottom line? Will workforce quality of life always be at odds with cost reduction? 
• Why are some companies hesitant to downsize their real estate portfolios? 
• What should companies consider when it comes to office redesigns that might come along with reductions in space? 
• Should smaller companies and start-ups forego office space altogether and stick with flexible co-working spaces? 
• Is it on companies, or the corporate real estate industry to solve for these new challenges? 
• Should workplace professionals be planning to ‘utilization data’ as opposed to planning to ‘occupancy data’? 
• Can every company benefit in some way from leveraging Space-as-a-Service? 
• Are flex spaces and co-working spaces inherently zero waste for companies? Or does the gap between people’s intentions and behaviors create some waste? 
• Why are we focusing so much on where we work and ignoring when we work?  
• Many CRE leaders are frozen in time because they’re scared of making costly mistakes, or they’re struggling to get buy-in from the C-Suite 
• How can access to good data help to acquire that buy-in from the C-Suite? 

Guests 

• Host: Sandra Panara – Director of Workplace Insights at Relogix 
• Andrew Millar – Founder & CEO of Relogix 
• Dave Cairns – Senior VP of Office Leasing at CBRE 
• Mark Gilbreath – Founder & CEO at LiquidSpace 
• Gabe Burke – Portfolio Strategies Lead at Accenture 
• Kay Sargent – Director of WorkPlace at HOK 

Show Notes 

• Optimizing Office Space in 2023 & Beyond by Relogix
• Navigating the World of Hybrid Work: A Benchmark Study in the Global Workspace Usage by Relogix 
• Entrepreneurship during the COVID-19 Pandemic: Evidence from the Business Formation Statistics – John Haltiwanger 
• Corporate Real Estate Has Become a Black Hole that Devours Money – Blog post by Gabe Burke 

If you liked today’s show, check out more episodes of the Let’s Get Real Podcast! This podcast is available on iTunes, Spotify and Google Podcasts.

Transcript: 

Sandra Panara (Relogix)  

Hey everyone, welcome to Let’s Get Real with Sandra and Friends, a workplace consortium podcast brought to you by Relogix. I’m excited to be sharing conversational musings about current events and how we envision the ever-changing world of work. I’m Sandra Panara, Director of Workplace Insights at Relogix. With 25 years of hands-on experience, I help value engineer global workplace portfolios and employee experiences by aligning workplace analytics with corporate real estate needs.  

Have any questions, comments, or suggestions for future podcasts? Please drop me a line at [email protected].  

Hello everyone, we’re just about to go live in a couple of minutes. Welcome to our second LinkedIn Live, hosted by Relogix. I’m excited to have a great lineup of panelists for everyone today.  

Let’s get started! Thank you for joining us for this next hour, my name is Sandra Panara and I’ll be facilitating our live panel discussion today with our amazing panelists, who I’ll introduce in the next couple of minutes.  

A few administration points to take note of: you’re encouraged to ask questions during this session. We’ll try our best to answer them all, but in case we run out of time or we missed a few, be sure to check the comments on LinkedIn for this event. We’ll be answering any missed questions there.  

We’re going to be talking a little bit about our most recent benchmark report that went out last month. If you haven’t downloaded our benchmarking report, be sure to do so. A link will be posted in the chat where you can access the report. Before we begin, I want to share a few takeaways from the report. 

First, a little bit about the data. We collected the data from many of our global customers. We had about 45,000 and then some spaces that we measured. Spaces includes desks, offices, meeting rooms, collaboration spaces, basically any space that someone would use in a workplace. We compared 2019 data to 2022 data.  

Looking at pre-COVID information and post-COVID information, the great thing about our data is that our customers had sensors installed in their space prior to COVID, so we were able to actually do a proper comparison to look at what’s actually changed in the organization. So, the results of this data are actually based off of 4.4 billion data points that we collected over the two-year period.  

What did we learn? The first takeaway is, looking at the two graphs, on the left side you see the 2019 data, on the right side you see the 2022 data. The first thing that you notice obviously is the pattern in the graph. The left side you see more of a consistent sort of pattern, people are coming in. This is actually based on a daily utilization or daily occupancy, so you see more consistency in the data where people were expected to be in the office every day versus on the right side.  

With the advent of hybrid and every company having different policies on the number of days in, you can kind of see a little bit of a wave happening. Also in 2022, that’s been dubbed as the year of reconnection. I think a lot of companies were more lenient about the mandates. Even though mandates were coming out about returning to the office, there was more leniency just because people were emerging from lockdown.  

The other thing that you can see is the white lines in between. This actually represents the Mondays and Fridays being the least preferred days in the office. As you can see, it was problematic pre-pandemic just as much as it is now post-pandemic. So, it’s not anything new when you’re looking at the data year over year.  

But then potentially what is most impressive is the fact that peak occupancy in 2019 never exceeded 79%. So that was the absolute maximum that we saw in the 2019 year. That’s across all industries, over multiple countries in North America and Europe as well. 

And then comparatively, in 2022, peak occupancy never exceeded 34%. So that is a 57% reduction from pre-pandemic times. That’s a pretty huge drop-off rate in terms of the number of people that are coming back.  

The magenta lines down below represent utilization, which measures time, versus occupancy, which is just determining whether somebody is present or not. If we just look at occupancy alone, we can tell that there’s already a pretty seismic opportunity from a reduction point of view in terms of how companies need to be thinking about space.  

So going on to 2023, we sort of alluded to this just prior to the Easter weekend because 2022 came and went. We had nine months of data. We were curious to see, well, what does 2023 look like in Q1? This is the first quarter we can actually compare to 2022 data to look at how the return is looking as we enter into 2023 and are going to continue to look at that data going forward.  

The first thing that we see is that at the end of March 31, occupancy was up at 51% in 2023 versus 37% in 2022. So, there’s definitely an increase in the return rate. We also saw that peak occupancy was up, at 53%, which is up from 34% in 2022.  

But perhaps the biggest surprise is when we look at the pattern with respect to the percent of change month over month. Mind you, in Q1 we were still plagued with Omicron, so not everybody was returning to the office. Mandates were kind of hit and miss, but there were still instances where people were coming back to the office. We expected that we would see a continuous increase in the percent change month over month. But in fact, what we’re seeing is it actually declining. This is interesting because when we’re looking at how the rate of return is comparing to last year, the fact that it’s declining is indicating that the return isn’t actually changing much from where it was last year, and that’s pretty meaningful.  

That being said, we’re obviously going to continue to track this data going forward. Q2 will probably be the most meaningful to date, just because mandates kind of started in April of last year. 

So being able to see how we’re comparing when people were actually returning to the office or were expected to return to the office, and what does that actually mean? In a nutshell, when we think about 2023, really, the demand for office space may actually be on the verge of leveling out. It’s still a little bit too soon to say. And as I said, the data for the coming months will bring more clarity, given the fact that we were still dealing with Omicron in Q1 of last year. And while more people are returning compared to last year, the rate of return is declining. And this is an important insight as companies consider the ROI of keeping an office.  

So, with that in mind, let us now bring our panelists online. Hello, everyone, and welcome. I’d like to introduce Gabe Burke, who is the Portfolio Strategies Lead at Accenture. We have Kay Sargent, Senior Principal Director of WorkPlace at HOK. We have Mark Gilbreath, Founder and CEO of LiquidSpace. Dave Cairns is the SVP of Office Leasing at CBRE. And our very own Andrew Millar, Founder and CEO of Relogix. 

Welcome, everyone! It’s been an interesting couple of weeks, just getting into the data for 2023 and I’m really excited about what this year is going to bring as it relates to what we’ve been all talking about. And what’s all near and dear to all of us on this panel is the question, what is the future of office? While much of the popular debates these days seems to be more around the impact on the human condition, really the focus of this panel discussion is really to define what the new value proposition for the office is for organizations considering their next steps. The key to success in organizations is really to reach a consensus on next steps, and that requires a set of key business objectives and goals first.  

With that, I wanted to start with you, Gabe. You wrote a blog post not too long ago, and you raised a valid point in your blog that cost reduction and employee satisfaction have always conflicted, and that workforce quality of life was not good for the bottom line. You even went on to say that the value proposition for the office has changed for employees, and as such, it will need to change for employers, too, if they want to remain competitive. 

So, thinking about the fact that companies are making risky business decisions, do you think that the ROI is changing? 

Gabe Burke (Accenture)  

Yes, I think there’s no question it has changed. Pre-pandemic, when people talked about providing a working environment or improving the quality of life for an office worker, it typically meant additional investment in the real estate, for example, a larger space, nicer amenities, high end furniture. That was how quality of life for an office worker was defined. And it was never an easy sell. The reason being that people in the C-Suite have spent their careers focused on measurable results, particularly those that impact the income statement. The payback of a happier, more productive employee is difficult to measure empirically, but the expense of a larger or upgraded space comes right off the bottom line. So, in a cost benefit analysis, the deck has always been stacked against real estate.  

When the pandemic began, everything was turned upside down. Employees didn’t want a bigger, nicer office. They wanted freedom. They wanted the option to not come in. And that’s what most of us did. We stayed home. As things progressed, we started to realize that we were missing something. We loved our newfound flexibility, but we wanted the in-office interaction that used to be an everyday occurrence. Most people only went in two or three days a week, and when they did, it was a ghost town. And I think for many companies, that’s still true.  

All of that has led us down an unfamiliar path, and we’re now caught trying to figure out how we keep our flexibility, but also restore the vibrant, energetic office that we used to enjoy.  

The solution to that, I believe, is a smaller footprint with a much higher desk-sharing ratio. We need to use less space to accommodate more people. That will allow a hybrid work model, but also create a well-occupied office.  

So back to your question, Sandra. Has ROI changed? It’s changed dramatically for employers who are seeking to improve quality of life for their people. Part of the solution is actually to save money by downsizing their space. And I think that’s something many people are still trying to comprehend. But the further we go into this, the more clear that becomes. 

Sandra Panara (Relogix) 

I think what’s interesting about that is, having been in a workplace for pretty much my entire career and working with organizations in workplace strategy initiatives, it’s always been said you don’t lead with the cost savings because it’s really an outcome. But ultimately, it’s what you do with the cost savings. It’s the give-back to the employees.  

And it’s interesting how you mentioned quality of life, because quality of life, as you said, was never really part of the equation way back when. It was really focused on the headquarters. In fact, even all the data that we’ve presented in our benchmark report is based off 99% headquarters space, there’s not really visibility into other types of spaces beyond the headquarters.  

And so as more and more individuals want flexibility, there’s a cost that’s associated with doing that. What is your advice to companies for dealing with some of the savings opportunities that are coming forward as a result? If the reality is that return to office never exceeds, let’s say we level out at 50%, is it a matter of just cutting the real estate and pocketing the savings? Or what should companies be thinking about? 

Gabe Burke (Accenture) 

Well, there are a few challenges. I think it’s inevitable that it will be done, I think most companies have started. You can talk to any company and they’re letting leases expire. They’re not renewing things. Most of them are doing piecemeal. But I think there’s an inevitability that most portfolios will be downsized significantly.  

I think the hesitancy is around three things. Two are manageable, one, I think is misguided. But the first one is there’s concern over the brand. People don’t want headlines. They think headlines about downsizing or moving headquarters is a negative thing. I tend to not agree with that. But even so, you can treat sensitive sites differently. But that is one thing I think that’s holding leaders back, a concern over market perception.  

The other one is CapEx. When we talk about the future of work, it usually involves a grand redesign of an office, which is wonderful and interesting, and I love those conversations. But I know in the CFO’s office they’re thinking, how much is all this going to cost us? You want to take us to this new portfolio? We’re going to spend tens of millions to get there. 

So companies need to be smart by figuring out ways to downsize without making drastic changes in the design of their space or even the furniture system. I think those things are done on an experimental basis and you roll them out slowly, but you can do significant downsizing based on the existing layout and furniture.  

And then the third one, and this is where I think many leaders are just missing the mark, is that they have this fear that somehow, they’re harming employee experience or that people won’t want to come in if they can’t find space. And there are many studies available now, and Accenture has done its own, that show unequivocally: people are more likely to come in, and they’re happier, if they think they’re going to see their colleagues.  

This goes back to the earlier part of my question: you are improving employee experience if you densify your office if you downsize your footprint and become more efficient. 

Sandra Panara (Relogix) 

Right, because you’re experiencing other people. Through the reduction, people come closer together, and it doesn’t feel so much like a ghost town.  

Kay, that’s a good segue into the question I was going to ask you, which is, as Gabe was talking about the cost of change, whether it’s CapEx looking at furniture solutions, it seems that companies are still frozen in time, maybe waiting for signals that change is imminent before forging ahead. Spending in the next while will be very intentional and very strategic. When we think about the ROI of design, specifically around redesigning the office, it seems as though it’s a high risk for organizations these days. You also said in a prior conversation that we had that everyone is waiting to see what everyone else is doing. If we think about the reduction activity that’s happening, or that will potentially happen in the next couple of months, how should companies be thinking about the redesign of their current office space? 

Kay Sargent (HOK) 

Thank you, Sandra. I want to pick up on something that Gabe said, and I want to pick up on something that you said. Companies are frozen in time because they don’t want to make a mistake. And in the North American model, we have the longest lease times, and we spend more money per square foot on space because we build it out more extensively than anywhere else in the world. The mantra has always been, we’re going to do this once every 10 years, so you damn well better get it right.  

So, people have always erred on the conservative side rather than being a little bit bolder or testing, because if you don’t get it right, you’re stuck with that for ten years.  

And so I think, fundamentally, we have to change the way that we approach how we deal with real estate. It’s not a one and done for ten years and you’re stuck with it. Things are evolving way too fast for that model to stick. And when Gabe talked about the value proposition, people are still focused on the value or the cost of space. They’re not thinking that 90% of a company’s money goes to their people. Only 10% goes to space. If we do anything to negatively impact people’s ability to function or be successful or happy or to thrive, then we could actually cost a company more money than we’ve saved them. 

So when it comes to redesigning space, I’m going to give you five things that I think are really important today. Number one, one size misfits all. Everybody is looking for the solution, and there is no “the solution”. For far too long, we’ve tried to oversimplify things, create guidelines and standards that we can easily roll out across a large portfolio. But by doing that, we’re not accommodating the variety of people that we have in the workforce today and the variety of tasks that are happening. We need to stop trying to oversimplify it.  

Number two, we need to realize that solutions vary from one company to another, one region to another, one industry to another, and that just because somebody else is doing something doesn’t necessarily mean it’s going to work for you. You need to know yourself and understand what it is that my company needs. So that’s number three, know thyself. 

Number four, we need to stop guessing. There really is a science to what we do. And if we really, truly understand how space is impacting people, an organization’s DNA, the primary things they’re trying to achieve, then we have a much higher chance of getting the right solution for you.  

Finally, we need to stop assuming that the workplace is going to solve everybody’s problems. Hybrid is more of an operational model than anything else and it is actually the hardest model to pull off. And if people aren’t doing the hard work of really understanding policies and procedures and all the things that this is going to impact, then we run the risk of making hybrid the worst of both, where people are commuting to sit on Zoom calls all day. So, we really need to rethink not just the workplace, but work in general. 

Sandra Panara (Relogix) 

It’s interesting Kay, hybrid to me is a mindset first and foremost. You think about all the policies around hybrid today and it’s still revolving around the traditional workplace, right? As you think about how many days you need to be in the office, structured teaming days, it’s always still revolving around the traditional office.  

It’s interesting though, when you think about the diversity of people and all of the things that people have experienced over the last couple of years, that it’s more than just what a specific office can offer an employee.  

With that, I’d like to ask Dave a question, thinking about leases. For example, as you start to see the numbers, as it relates to the fact that companies are adopting hybrid policies, you’ve got lower occupancy numbers. People are watching the occupancy numbers week by week, day by day, and the numbers aren’t coming up at the rate of return that people are anticipating or expecting. We still are seeing a bit of a hold in the sense of well, maybe something magical is going to happen by the fall that’s going to bring us back to what pre-pandemic times were. 

How do companies approach leases, especially if they’ve got leases that are coming due? What are some of the things that they should be thinking about and what should they be asking? 

Dave Cairns (CBRE) 

So, I first want to say a few things. One, I really agree with Gabe that we need to downsize and obviously we need to share desks. But I also feel that we need to be reimagining the HQ as a venue and accept the fact that in respect to your data, there’s occupancy and there’s utilization. Utilization is more around how much time people are spending in a given environment. And we’re noticing that people are choosing to spend less time on average during a day that they go to the office. They’re sort of dropping in for whatever the use case is. 

I think that the ultimate goal a company should have is to be managing the outcome toward utilization. That is what makes the most sense, and try to create some vibrancy around that. WeWork did a really great job of that with their HQ. Phil Kirschner talks a lot about that, where you almost had FOMO, like you couldn’t get in there. A great restaurant that you go to ends up having the same thing.  

No matter the size of an organization, I think the objective needs to be managing towards what the data suggests utilization is likely to shake out to be. There’s obviously a spectrum to that and you can look at the average, you can look at the peak, and you can look at the trough, but that’s the data point that matters to me the most.  

So then the question is, what do you do depending on the size of your organization and where you are in your lease cycle? If you’re a small company, my advice would be ditch the traditional office model completely. Go to a completely on-demand approach, whether that’s booking a space on a regular cadence of, say, once every two weeks on a Wednesday to keep consistency, book that out six months in advance through a coworking operator. There’s tons of them out there. That’s a great strategy to deploy as a small company and start to actually measure how that works and then add on as needed.  

If you’re a large company, you’re going to be needing to look at it from the exact opposite vantage point. The reality is that a lot of companies that are big are going to be renewing their leases still because risk mitigation is the way that they look at business, rather than optimization or being “risky to innovate”. So a lot of the big firms are still going to kick the can at this point. And I think that makes sense, broadly speaking.  

But what I think a lot of them are not doing, and this is a plug for Mark and his whole sector, is that they should be adding on in the short term the ability for those employees to be able to choose third-party workspaces to engage with.  

There are so many inherent benefits to that. It’s going to hopefully upgrade the quality of life of employees who can actually meet in more convenient locations. It’s going to help an employer be able to meet ESG objectives by reducing the impact that they have on the environment through commuting and through powering office space. And it’s going to inform future real estate strategy around what long lease spaces do you need and why? Because you’re going to be able to have a much clearer picture around where people are choosing to actually go when they’re doing various working activities. Whether that’s remote working from a coworking space to get away from distractions at home, or whether that’s collaborating at the HQ venue in preparation for some sort of big project, or it’s an informal meeting that happens in a third-party coworking space that’s equidistant to four people who live in a greater city area. 

This is the thing that I think not enough large employers are doing. In my mind, we’ve basically inverted the paradigm. Home is now the primary place that people prefer to reside in. I think then it’s going to be a wide variety of third-party spaces, whether those are commercial spaces or retail spaces, whatever we want to call it.  

And then the HQ is frankly the least desirable one because it’s hardest to get to and it’s often sort of confusing why you’re there to perform a lot of your activities, but that can be reimagined into a venue over time that becomes incredible to go to. It’s just that you end up going with a lot less frequency. 

I think that a lot of the change is going to happen from the start-up up going forward. Nick Bloom has put out some great research that has highlighted that start-up formation dropped in the middle of the pandemic, but it’s now eclipsed pre-pandemic levels. And the rationale behind that is that it’s actually easier to start a business — and a lot of people will contest this — but the data is showing that more start-ups are being formed distributed, and you can hire global talent, you can mitigate some of the cost. Peoples’ quality of life in many cases are actually improved. So we’re seeing larger start-up formations and then the younger the organization, we’re also seeing more days with which they’re working from home.  

What that tells me is that younger companies are starting to develop a more distributed and digital by default mindset. They’re going to look at real estate in a completely different way. I think that the long-term office lease is basically swimming upstream. It’s not gone, but the use case for that long-term office lease is moving up the chain.  

Other than that, the only two macro things that I would highlight is that the biggest problems are actually not real estate problems. It’s changing the way a business operates. Hybrid, I agree with Kay, is the most fucked up one. I think that you should be doing it digital by default. I actually completely agree with what Tobias from Shopify said at the beginning of the pandemic, that the business was now digital by default. That didn’t mean that they weren’t going to use real estate, although they’re dumping a ton of real estate. That being said, it didn’t mean they weren’t going to use it, it just meant that it didn’t make sense to run a business in 2023 off the back of a physical infrastructure and a physical way of needing to train, mentor, etc. It’s risky in the current environment that we’re in. So, I think that we need to be reorienting the way we work away from proximity-based hierarchy and more to distributed flat hierarchy ways of working. That’s a huge problem that really has very little to do with real estate.  

And then the other one is that this shouldn’t really be all on the backs of companies to solve. The real estate industry needs to switch its operating model as well towards Space-as-a-Service. And we’re starting to see that that is taking shape. The predictions were already there pre-pandemic around 30% of supply getting flipped. I still see a ton of friction there. A lot of landlords don’t want to migrate their supply and right now they don’t necessarily have to because a lot of direct vacancy rates, meaning vacancy that landlords are holding today, and especially AAA class buildings, are still sub 10%. 

But eventually, I believe that regardless of where occupancy goes, vacancy is still going to go up regardless of how much time people are starting to spend in the office. The industry itself needs to flip its operating model and if it doesn’t proactively do it, it’s going to be a Blockbuster moment. That’s my general take. 

Sandra Panara (Relogix)  

It’s interesting, what you said at the beginning, that companies should be planning to utilization because obviously utilization is considerably lower than occupancy. We were talking backstage before we went live about how the amount of time that people spend in offices is lower. It’s no longer the case that you go in, you spend the entire day there. Some people do, but some people just go in, do whatever they need to do and then they leave. I know that in the past, utilization basically was the metric that enabled you to say, okay, if you were to scale back your real estate based on occupancy, because as I said today, again, assuming that we’re at 50%, that’s already a considerable decline in real estate needs.  

But then knowing that if your business is growing, at some point you potentially need to take on additional real estate, which is probably why companies are holding on to real estate. Because in the past you had to think about what your future needs are and then pay for that upfront. Even though you’re getting maybe a discounted rate, you’re still paying for unnecessary space right from day one. 

So the whole concept of sharing ratios and reducing the portfolio and then looking at utilization, which really then the proper optimization of workspace enables you to figure out, well, how can you dial up your space in order to essentially align more and more with how people are actually using the space, where you can still contain it within the real estate footprint that you currently have?  

But what I think what’s interesting, and this is actually where Mark, I’m going to bring you into the conversation, is the whole discussion around, well, what is the office? I think it was said earlier in the conversation as we think about the office or working from home or working from the headquarters, there’s a whole slew of other things that happen in between around where people actually work. So, once you’ve decided to reduce your space, it’s no longer a decision around keeping headquarters or not. It opens up the discussion to, well, what kind of space do we want to offer our employees? So, how do you think of the ROI when it comes to Space-as-a-Service? 

Mark Gilbreath (LiquidSpace)  

So much to agree with from the folks that have already shared.  I think, a first comment I’d make, Sandra, is there’s a needed definition or a clarification of a definition. I think most folks on your audience today probably would respond to the title of hybrid as one of the banners on top of this general discussion around workplace over the last two years post-pandemic, but I think a lot of folks have the wrong definition or at least a partial definition of hybrid.  

So, if I may be so bold, and to echo some of the comments from Gabe and Kay and Dave, the definition that I believe is warranted for hybrid is it’s the continuum of workplaces where professionals today get their work done. And to Dave’s point, it begins at home, where he’s sitting right now on Prince Edward Island. And it emanates from home for the most progressive companies to include, yes, the headquarters, which to Gabe’s comments, for most companies are becoming smaller and less numerous. But it also includes the near infinite ecosystem of flexible spaces that can be available as efficiently as on-demand, meaning zero waste, but also as dedicated hubs. 

It’s the continuum of all three of those categories. It’s home. It’s flex spaces near colleagues and near home. And yes, it’s the continuation of traditional leased offices, albeit for most companies, that’s going to be less than they had in the past. That’s hybrid. Hybrid is not just, what days do I go to the headquarters? Hybrid is, where are the places that I work? 

With regards to the ROI equation around that, a lot of folks will posit the question, will there be a tipping point when it makes sense to consider flexible spaces? The short answer is absolutely.  

The more nuanced answer would be if you want to say, when did that tipping point happen? Or when might it happen? You could say it started in 1989 when Mark Dixon started Regis and co-invented the serviced office industry to give companies the optionality to rent fully move-in ready offices on flexible terms. You could say if you’re a little bit more conservative, that it was 2006 when the Hat Factory opened arguably the first coworking space in the world in San Francisco and added another rich example of flexible space. I might argue it was 2011, when the first on-demand office marketplace was launched that let you book space online with a click, wink wink!  

And if you wanted to take a revisionist and hyper conservative outlook on when the tipping point occurred, you’d have to at least begrudgingly acknowledge that it certainly tipped in the first weeks of March 2020, when the world changed, when the paradigm flipped, as Dave said, or to Gabe’s comment, when it became evident immediately and ever since, and Sandra, your Relogix data corroborates this, when the numbers flipped, when the level of presenteeism at traditional lease offices roughly halved.  

To punctuate that with one last comment, about most companies’ dirty little secret. Sandra, you’ve talked about this, Kay has too. For most companies, the tipping point preceded the transformational effects of the pandemic for most companies in 2019. And the Relogix data talks about average occupancies of 63% in 2019. The planned economics of corporate campuses at 63% average occupancy don’t work. I guarantee the planned ROI was, oh, we’re going to have 70, 80, 90, 100 percent utilization. No, it doesn’t work. You have that further still, and it’s staggeringly inefficient. 

One quick story of a Fortune 50 company operating at scale with a blend of flexible office as well as corporate portfolio for their hybrid workplace, their at-scale stabilized average cost per served day at their headquarters portfolio is approximately $375 a day. 

Had they achieved the theoretical minimum cost or maximal efficiency of their leased portfolio, if every planned seat was filled every day of the work week, Monday through Friday, that cost would have been $48. Their actual observed cost of a global at-scale, on-demand flex component of their workplace is $21.65. It’s less than half of the observed cost of their traditional portfolio. In real dollars, it’s one 17th the cost, probably it’s half the cost of their theoretical minimum cost, and it’s one 17th the actual cost that they’re observing, given their average occupancy, which is about 13%.  

So, bottom line, the tipping point has happened. It exists for every company today to leverage some degree of Space-as-a-Service, whether you go as extreme as a fully remote distributed company or whether you apply a more conservative line and use flex just to augment your portfolio. But I firmly believe it’s going to be a component of every workplace portfolio that wants to be viable and cost efficient in this new modern age. 

Sandra Panara (Relogix) 

So, just a question, when you think about flex on-demand — it seems like everything that we do these days is all on-demand, and it often comes at a cost. 

I like the math that you just did, but I think we still perceive when you have an idea of what your needs are, it’s a fixed cost. Yeah, you might pay a little bit, not necessarily more, but in the long run, it ends up being less expensive. Like, if you think about cable, you’ve got every subscription possible to the channels to watch stuff, and it ends up costing you more than cable did. But your experience is better, right?  

Mark Gilbreath (LiquidSpace) 

The dirty little secret on cable or streaming media is that they really try to make it behave more like that, like a long-term lease. Yes, you could cancel on a month’s notice, but what do you do? You sign up for Netflix and Disney+ and Hulu and you just keep paying and paying, and they do a great job of sort of obfuscating how to disengage.  

So the glory, the enormous economic leverage of flex as a component of your hybrid workplace strategy is, it is implicitly zero waste. You don’t book it if you don’t need it. If your plans change and you’re not going to use it, you cancel it. There’s no such thing as a ten-year lease. It’s zero waste. Your utilization can approach 100%, something that was never possible and never nearly achieved in the traditional lease model. Now, is that a condemnation of having a lease portfolio? No, absolutely not. 

Kay Sargent (HOK) 

But Mark, I think what’s happening is the middle is disappearing. You either have younger companies, start-ups that want in and out of space really quickly, or you’ve got companies that are super well established, they have lots of people they want that bespoke space that really kind of is the embodiment of their culture and they’re going to continue to thrive. But the middle, I think, is disappearing. 

Mark Gilbreath (LiquidSpace) 

Middle being what? 

Kay Sargent (HOK) 

Companies in the middle that are beyond start-ups. And they just kind of have average “icky” space. You either want quick, easy, fast space that you can get in and out of easily, or you want that bespoke. 

Mark Gilbreath (LiquidSpace) 

So you might say there’s a flight to better.  

Kay Sargent (HOK) 

Absolutely. Better, or quicker.  

Mark Gilbreath (LiquidSpace) 

On demand, zero waste. Where I need it when I want it, approximate to my colleagues. Better, higher quality, Class A, green, healthy, well-designed, better. Get rid of the shitty stuff in the middle. Yes. 

Sandra Panara (Relogix) 

Just a comment, Mark, you mentioned that people don’t book space if they don’t intend to use it. It’s basically zero waste. From a Relogix perspective, and I’m going to bring Andrew into this conversation, we actually see the behavior firsthand, right. Through integrations of booking data and all of that other stuff, we can see what people’s intentions are, we can see what design intentions are, and then we come in and we validate. Are people actually using the space as intended or as they intended? And we see a huge disconnect between people’s intentions and people’s behaviors.  

So I wanted to ask Andrew the question, with respect to the data, and being a veteran in the real estate technology space, how do you see this disruption in terms of how it’s impacting CRE leaders’ abilities to make informed decisions about their real estate? Keeping real estate as that broad definition as Mark just described. 

Andrew Millar (Relogix) 

Zero waste, I think, Mark, you’re poking at me there. Nirvana, the dream of zero waste. I’ve been in this game so for so long and standing on my soapbox trying to convince the world that the world’s real estate and offices have been half empty for all this time and it’s been just a massive waste. And how do we correct that and how do we make more efficient use of the space that we already have in the built world?  

And so, to answer the question, I think it’s going to be harder than ever for CRE leaders in our industry to make informed decisions. I think the reality is there’s a blind spot now, and this blind spot has been widening. We start with the notion of the world’s empty real estate. It’s been very inefficient, and the waste has been there, but our model traditionally has been, let’s oversupply has been the name of the game for most organizations for fear of not having enough space. But oversupply has been the game. That’s where we found ourselves.  

But guess what? The chickens have come home to roost, and we find ourselves now with the big blind spot. And here’s why I would say that what we need to do is we need to widen the aperture, of course, now, because we’re not just looking at what Sandra always calls the box, the office. We’ve got to widen the aperture because we’ve got to try to figure out the model with respect to what’s happening with work from home and work from flex or work from third spaces. The aperture has to widen so we can build a model that understands those three legs on the stool, not just the office.  

And we’re trying to understand the new patterns of work. I think that’s the biggest challenge, because what we’re trying to understand is people’s intent to use space versus their actual behavior. And I think that is data that’s very difficult to get our hands on. It’s difficult to understand what that model is going to look like into the future and predict it, hence the blind spot. I think the blind spot will continue and it’ll continue to expand.  

The reality is it’s going to be a lot more difficult for CRE leaders to make informed decisions about the demand and the forecast for space. Because reality is, folks, in our industry, we have never been all that good at data. And that problem is now a bigger problem than it used to be, and it’s more challenging for folks in our industry. 

Dave Cairns (CBRE) 

May I add something? I go back to my issue of how businesses are operated because most, I forget the figures, but it’s at minimum 50% of knowledge workers’ tasks are done in a heads-down capacity, and it can actually get up to 80%. So, if you’re trapped in synchronous meetings, 30-minute, hour-long interval synchronous meetings, whether you’re in an office or you’re remote, you’re not really going to have much optionality around where you work. You’re going to pick one or the other. Like, I’m going to pick home, or I’m going to pick the office.  

So, if you can actually flip to more asynchronous ways of working, which is a really complicated problem to solve, you unlock the ability to basically liberate people to work where they want to work. And I’m part of the fortunate few who already have that opportunity. I work from a myriad of places, whether it’s on a walk, whether it’s a coffee shop, whether it’s a coworking space office. How many times have I conducted business from a grocery store? 

But I’m not the average worker. And so, I think that that is a huge, huge conundrum, far more important for organizations to solve than where the place is. It’s the how. How do you work, how do you evolve how you work? Then you can start to shift where you do it. 

Andrew Millar (Relogix) 

Let me lean in on that really quickly: for me, what I hear there is we’re trying to understand the patterns of work at the individual level rather than the holistic real estate challenge that we’ve had in the past. If we can pattern an individual as a persona and understand their pattern of work, we build a model from the bottom up instead of the top down like we’ve been trying to do in the industry and not doing it very well for a very long time. 

Sandra Panara (Relogix) 

That’s where you get pushback from companies in terms of privacy. Well, is it corporate pushback or is it employee pushback? Because again, it comes down to what the value is that you’re delivering to the end user. If ultimately, it’s about delivering a better experience, maybe employees are more willing to share their data.  

But in the past, all of us here that have worked in corporate real estate know when the data gets into the wrong hands, that things can go sideways very quickly. Which is why you get the slap on the hand and you’re like, no, you can’t use the data that way, or we can’t provide certain pieces of information. I’m hoping that that’s going to change in the near future because I think there’s a huge benefit to the end user and to organizations to understand the real personas of their organization that make up their corporate culture. And that’s a living, breathing thing. It’s not, “this is our culture, it’s fixed, this is who we are”. That culture changes as the people in your organization change. And you need to keep up with that. Kay, you were going to say something? 

Kay Sargent (HOK) 

Yes, I think everybody is ignoring the elephant in the room, too. Everybody’s talking about where we work, but 94% of the workforce actually cares about when they work more than where they work. 80% care about where they work, so we can’t ignore that. But I think a big push, a reason why people don’t necessarily want to go back to the office is number one, the commute, and number two is that eight-hour block. People have gotten used to either going to the gym a little bit later or walking their dog at lunch or doing things like that. We’re not necessarily addressing that certain people are night owls and we work better at night or other people are morning people. And if I get up first thing in the morning and I have this great idea that I’ve thought about over the night and I want to get to it, but I’ve got to commute and I’m not even at my desk for two or three hours, that idea is gone. Versus if I could just sit there and get it done. And nobody is really addressing that issue of how we’re working. 

And I think it’s interesting because when we sent people home, I don’t know a single company that said, and by the way, while you’re at it, make up your own hours. But basically, in a sense, that’s what a lot of people ended up doing. They found their natural patterns and rhythms about when they actually worked better. 

Mark Gilbreath (LiquidSpace) 

So well said, Kay. The reality of how work is happening today, the when and the where of it, is vastly different than it was pre-pandemic. The other elephant in the room, or a second elephant in the room (there’s probably multiple) that I humbly suggest is the CRE leaders who, to your point Kay, are frozen in time because they don’t want to make a mistake. Let’s remember they were all trained and throughout their careers they were conditioned to make the smart decision and to Dave’s comments or Gabe’s comments, to be top down in the design and the prescription of what workplace is and where it is, where that HQ venue is, where that employee is assigned within that thoughtfully designed static workplace.  

You’ve got to throw all that out. I’d say to the audience, which I presume is mostly CRE and workplace leaders, hey, you don’t have to solve the where and when of the new workplace because you can’t, because it’s infinitely personal. But that doesn’t mean you don’t need to learn what the new rhythms and rituals are. It’s vitally important that you do because your people policies need to map to and support the effective “where and when” of all of your employees. 

But you’re never going to solve it by trying to figure out the answer and prescribe it. Rather you’ve got to let go. You’ve got to give choice within boundaries to your employees and you’ve got to have the mechanisms in place to be able to learn from what those individual employees’ decisions are, to see what the new emerging patterns are. It’s an inverted approach to the craft of workplace.  

Dave Cairns (CBRE)  

I think a lot of CRE leaders want to do all that and they want to take risks and they want to make mistakes, but a lot of them are having a hard time getting the buy in from the C-Suite. So, I actually think the ones I talked to are like, let’s go, let’s do some cool shit, and they get squashed. But I agree with everything you just said. I just wanted to highlight that. 

Sandra Panara (Relogix)  

So on that point, going back to Andrew, thinking about the importance of visibility — you can’t manage what you can’t see — so that’s really key, regardless of whether it’s leased space, whether it’s Space-as-a-Service or maybe even in the future, working from home: what advice would you give to CRE technology leaders today around capturing data so that they can start to get a sense of how their employees are working and not necessarily how employees are working from a negative point of view, but really to enable them to start thinking about the direction that their real estate portfolio needs to take? 

Andrew Millar (Relogix) 

I don’t think my view on that has changed. I certainly have always believed it’s a difficult nut to crack and it’s a journey. And I try to help and encourage CRE leaders to try to not rush out and look for an immediate solution to try to solve for this. Like what Mark is saying, it’s not a solvable puzzle. I think technology today has made our lives a lot easier because it’s less rigid, it’s more like Lego in my mind. And we can work on individual challenges to find data to solve and answer for questions that need answering and we can solve for it piece by piece and then put the puzzle together. Not going to get a holistic solution that’s going to solve the entire challenge.  

It’s a journey. Start down the journey. It’s a big investment in resources. Get the right team, the right tools in the toolbox, and then we’re going to invest in it over time and start solving for problems piece by piece and then puzzle it together. That’s the only way to go about it today. 

Sandra Panara (Relogix) 

To add to that, I think the other thing that is maybe not as critical right now, but will be in the not too distant future is the need for continuous reporting. You probably can attest to in the past, data fact finding was always one and done. You basically did it, it was a moment in time. You used it to make decisions, and then you didn’t look at it for another three to five years, and you sort of then look back and say, okay, well, what’s changed in the last five years?  

It seems that now that the whole behavior related to work is so much more dynamic. That if you want to stay in sync with how people are working so that you aren’t, as Mark put so eloquently, you’re not wasting money, and you’re really running a tight ship, you need information to be able to do that effectively. 

Kay Sargent (HOK) 

I’m going to argue that I think a lot of companies actually have a lot of information, they just don’t know what to do with it, and they’re not using it appropriately. And everybody keeps thinking about how do we measure or monitor? I want to take that information and put it in people’s hands. I want to get to IoT 2.0 where those sensors are not just monitoring what I’m doing and the conditions. Those sensors are feeding an app that is telling me, where is it quieter, where is it cooler? Where is my colleague sitting? What’s happening, is the line at the barista one or ten people? It’s giving me information that empowers me to be able to make better decisions and choices and gives me more control options. “Choices and control” is the mantra that we should all be talking about when, where, how you work, all of those things. We need to empower people and stop assuming that everybody has to go sit in one spot like a potted plant and then you’re done. 

Sandra Panara (Relogix) 

In the last four minutes of this discussion, one of the things that I wanted to highlight is how interesting everyone’s different perspectives are. It’s reminding me of the kinds of conversations are that are happening or need to happen in organizations. Because you’ve got different people with different viewpoints. There’s sometimes conflicting arguments around why solution needs to go one way or another. But ultimately, the objective in the organization is really to reach consensus on what the best way forward is and what are the action items that organizations can take or teams can start to take together to move the company forward.  

Any final thoughts or comments from the panel? 

Mark Gilbreath (LiquidSpace) 

If I may, I’d like to just reiterate a comment that Dave made because I think it’s critically important. The discussion about these topics is no longer a real estate discussion. Or rather, we can’t relax into letting it be just a real estate discussion. It’s a C-Suite discussion. We as the practitioners of and the providers of services historically to the real estate industry need to be so bold as to get our game on and get into the C-Suite. We need to be talking to the Chief People Officers, we need to be talking to the CFOs, we need to be talking to the CEOs of the largest companies because it’s no longer about where I’ll put my HQ. It’s about corporate profitability, it’s about corporate productivity, it’s about ESG, it’s about hiring, retention. Those aren’t real estate discussions, but we are the linchpin as workplace practitioners of those discussions. We’ve got to sell to a broader and higher audience to realize the real benefits. 

Kay Sargent (HOK) 

I agree with you 1000%, Mark. And we’ve got to push back, because everybody just says, oh, go do something in the workplace and that’ll solve all of our problems. We have a fundamental opportunity right now to rethink how we work. And in my 38-year career, we have never had such a unique opportunity. And if we blow this, this could be our “Kodak moment” where we all know that disruption is here. What we’re doing now isn’t working and we need to fundamentally shift that. And if we don’t stand up and make some bold opportunities to really change the way we are working, then shame on us. 

Dave Cairns (CBRE) 

There was a post that went viral yesterday about remote working. And it doesn’t matter to articulate what that post was, but what I feel is going on right now is that the definition of remote work equals freedom to an employee. But I think that the problem that we have is that the context around the definition of remote work is where I’m sitting right now, which is in my basement, right? I actually love sitting in this basement. I have a sauna right behind me. My dog’s right over here. I was stretching my neck out before this call. I love it. It’s not for everybody and I don’t do it all the time.  

But the point is that I think that remote work equals freedom. So, if we can start to actually offer more optionality to people to case point around where, when and how we’re doing things, rather than there’s just a definitive binary option we have right now, which is home or HQ, and it’s like get back to the HQ — that’s super divisive. That’s not inspiring. That’s going to make people favor remote work because remote work to them equals freedom. 

So, it’s a continuum of where we’re going to do this and how we’re going to do it. And I think we need to just literally stop this divisive binary home/office thing. People are going to pick home if that is the way we structure this conversation. 

Gabe Burke (Accenture) 

Well, that’s a key point because as I’m watching closely right now, there’s a battle going on still between employers and employees. Many employers are still pushing for people back in the office. They’re pushing for what is familiar to them and how you create productivity. But employees will not accept that. We’ve seen many, many RTO mandates rolled out and then repealed and we’re watching this battle play out.  

I think everyone in this meeting right now is very forward thinking, but many in leadership aren’t there yet. And I think that this will continue until it really dawns on the C-Suite and leadership that the flexibility, the cultural change required, is inevitable. But it isn’t there yet. It’s happening very slowly. And I think that voices like ours are important. And I also think bringing data to the conversation, which is exactly what Relogix is doing, is instrumental in influencing people at the top. 

Andrew Millar (Relogix) 

That’s an awesome close, Gabe. I love that. 

Sandra Panara (Relogix) 

Well, thanks, everyone. We’re at the top of the hour. I appreciate your participation. Again, thanks to everyone for participating and to our audience for spending the last hour with us. 

Guests 

Thanks, Sandra! 

Sandra Panara (Relogix) 

Take care, everybody.