The outlook for office markets: Productivity and the return to the office

What evidence is there to highlight changing employer and employee attitudes to hybrid working? In the first of this three-part series, Tarrant Parsons, RICS Senior Economist, explores the evidence around hybrid working and productivity.

The impacts of returning to the office

Over three years have passed since the start of the pandemic. Although restrictions on social interactions have long been removed in most places, working patterns across many roles remain drastically different compared to pre-pandemic norms.

In 2019, ONS data showed only 12% of UK working adults reported working from home at some point during the week. In 2023, this has risen sharply to 40% (this has eased from a peak of 49% during the first lockdown). Figures from the UK Household Longitudinal Study also showed that only 6% of individuals worked solely from home in February 2020. In contrast, the latest ONS estimates now point to 16% of workers being exclusively home-based.

Naturally, this composition varies significantly when looking at specific sectors of employment. 71% of those categorised as working in UK ‘professional occupations’ now work from home at least some of the time, while 27% work entirely from home. Similar trends can be seen across the world. For example, 58% of Americans report they have the opportunity to work from home at least one day a week, while 35% state that they have the option to work five days remotely (McKinsey/IPSOS survey).

Given many of these roles will have been mostly office based previously, there remains an ongoing structural shift occurring across the sector as businesses decide on their long-term strategies. The future approach to remote or hybrid working will carry important ramifications for offices, affecting both occupier and investor trends.

The demographics of returners

With that in mind, survey evidence shows a strong majority of employees would prefer to keep hybrid working patterns for the long term. According to FlexJobs’ Career Pulse Survey:

• 97% of workers wanted to maintain some form of remote work:
• 65% wanted to work remotely full-time
• 32% wanted a hybrid work environment.

Moreover, insights on motivations for seeking a new job showed ‘looking for flexible working arrangements’ was ranked third out of 13 different factors. The survey showed flexible working only ranked behind greater pay and better career opportunities (McKinsey research/ IPSOS survey).

When looking at age demographics, there are slight differences in opinions on working from home. A Hubble survey of 1000 employees showed that a net balance of +67% of those in the 41+ age category reported having a positive experience of working from home. The comparable figure for those younger than 27 (Gen Z) is a little lower at +56%. When asked which aspects of office life they missed, close to 50% of Gen Z respondents cited meeting rooms and local restaurants/bars, with roughly 40% missing places to do focused work.

Differences in living situations are likely a key driver. A much higher proportion of the Gen Z respondents currently live with parents or housemates relative to the other age groups, creating difficulties finding enough space to work peacefully for some. Still, all age groups reported an overall positive experience of working from home, albeit to slightly varying degrees.

Do employers and employees agree?

There have been several high-profile instances of companies requesting staff to return to working in the office for the majority of the week such as Apple, Twitter, JP Morgan Chase and Goldman Sachs. However, the majority of employers seem to be in favour of keeping a flexible approach to hybrid working. That is certainly the message from a 2023 CIPD survey, which showed a growing number of organisations (66% versus 56% in a similar CIPD survey in 2022) believe that it is important to provide flexible working as an option when advertising jobs. This is seen as a vital way of attracting staff and addressing skill or labour shortages.

Crucially it appears that companies have realised the benefits to remote working as well. Global workplace analytics reviewed over 4,000 studies and found the following advantages for companies adopting a flexible approach to workplace location:

• reduced attrition
• fewer unscheduled absences
• expanded talent pools for recruitment and
• increased productivity.

Debating productivity

There is a wealth of evidence pointing to improved productivity from remote working. One research project conducted for the National Bureau of Economic Research (NBER) (which captured data on 16,000 workers over 9 months found that working from home increased productivity by 13%. In addition to productivity gains, studies from Owl Labs and Ergotron found a plethora of other advantages to home working for employees, such as:

• improved mental health
• greater work-life balance
• enhanced physical health and
• heightened job satisfaction.

So why are some companies so focused on enticing staff back into the office for more of the time? Some of the business arguments put forward in favour of returning to office-based working include: facilitating easier monitoring of staff, enabling unstructured interactions that help people exchange information and build networks, and allowing the values of the company culture to be shared. While these seem to have their individual merits, research findings are mixed or have virtually no data (particularly on the benefits of unstructured conversations).

More recently, however, the results of several newer working papers have stirred the debate around the impact of remote working on productivity. One study from SIEPR found fully-remote working to be associated with 10% lower productivity compared to fully in-person work (albeit hybrid work was estimated to have very little impact on productivity). Less efficient communication was found to be the main reason behind this estimated decline from fully remote work. In addition, limiting interactions to virtual meetings was found to make it more difficult for some employees to learn from colleagues, with less experienced staff more likely to be disadvantaged by this.

With different research drawing opposing conclusions, the debate around the effectiveness of remote and hybrid working remains very much alive. For some companies and for certain jobs, being together in person is more beneficial than for others, meaning there is no one-size-fits-all approach. But for many, there is a strong business case for keeping flexible or remote working available and it appears unlikely that working patterns will return to pre-pandemic levels.

The implications for occupancy

A significant factor likely contributing to some firms’ preference for office-based working is that they want to prevent the office space they occupy (either through lease or freehold) from being underutilised. The second of this three-part series will examine whether increasing vacancy rates signal a permanent structural shift in office tenant demand.