Return-to-office is a $1.3 trillion problem few have figured out

In the emerging post-pandemic era, most aspects of life have returned to normal. Moviegoers are flocking to cinemas, vacationers jammed airports for summer travel and kids are returning to classrooms.

The one thing that has remained stubbornly fraught: the world of work.

Three and a half years after millions of office-goers were sent home en masse, companies, employees and governments are still figuring out how to adapt to lasting changes to corporate life. But stark differences have emerged across continents and cultures, with Asian and European workers largely returning to offices at a faster pace than their counterparts in the Americas.

Asian nations did a better job keeping COVID-19 under wraps in the pandemic’s first year, so people there didn’t get as accustomed to working from home, making it easier to transition back to office life, researchers found. Europe’s habits vary widely — the UK has one of the highest rates of remote work, and France one of the lowest — but several of its countries also are leading the way with laws enshrining flexible schedules.

Then there are places such as the U.S., where policymakers have stayed largely silent, leaving bosses and employees to navigate the changes on their own. As the post-Labor Day period marks a time of resuming normal schedules after summer vacations, companies including Inc. and even Zoom Video Communications Inc. are cracking down on getting workers back to offices for at least part of the week.

But even then, workers are facing vastly different policies depending on their companies, managers or location. Goldman Sachs Group Inc. wants staff in five days a week. At Walt Disney Co., it’s four days; for Amazon, Google and many others, it’s three. Hybrid schedules are now the norm for office goers in the world’s largest economy.

The chaotic nature of return-to-office was understandable two years ago, when COVID was still circulating at crisis levels and “the Great Resignation” and “lying flat” were the catchphrases of the day for workers pushing back on norms. Now, cooling economies mean hiring has slowed in many sectors from the frenetic pace of two years ago, giving bosses more leverage to call the shots, while layoffs and cost-cutting measures have many workers on edge. Yet the debate is far from settled, leaving questions about the role of offices, the integration of work and life, and the measurement of productivity and pay.

How it plays out carries significant economic consequences: McKinsey Global Institute estimates that pandemic shifts could erase as much as $1.3 trillion of real estate value in big cities around the world by 2030.

“Everyone is asking, ‘Is this going to come back?’” said Phil Kirschner, who advises executives on real estate and workplace strategies at McKinsey & Co. in the U.S.

“What we’ve done is Band-Aided some tools together to prevent the ship from sinking,” he said. “But we haven’t done the difficult work to say, ‘The way we were working before was not universally great for everybody. And this is the new reality.’”

Cultures, commutes

It’s hard to cast entire continents as monolithic. The U.S. may have embraced remote work more than other regions, but more than half of American workers toil on the frontlines, without much of an option to work from home. In Japan, the nation’s largest lenders are eschewing a minimum number of office days per week, in contrast to their Wall Street counterparts. Unilever Plc, the European maker of Dove soap, allows desk-based workers a good deal of flexibility in both where and when they work, and has piloted four-day workweeks in several countries.

But both cultural and structural factors have contributed to regional variations, according to Phil Ryan, London-based director of JLL City Futures, part of the global research and analysis arm of the real estate firm Jones Lang LaSalle Inc.

“Some of it is absolutely cultural — some places have more expectations of people coming in,” said Ryan. “In some places it’s about reliable public transportation. Another big difference is home sizes; in the U.S., they have larger home offices so they don’t feel that the office is a better place to work.”

In Hong Kong, tiny apartments and an efficient public transport system have given residents fewer reasons to work from home. There, subway ridership surpassed 2019 levels in March and empty office space is more tied to decreased Chinese investment than remote work. In New York, subways are still only 70% full on weekdays and only about half of workers are back at buildings on a given day compared with pre-COVID levels.

Working remotely has been generally more accepted and widespread in the U.S., according to Mark Mortensen and Henrik Bresman, professors at the INSEAD business school. That’s due in part to the preponderance of technology, finance and business-services roles — so-called “knowledge workers” — that are computer-intensive and thus more conducive to remote work. Americans in tech, finance and professional services work from home nearly a full day more per week than those in government and health-care roles, according to research from a team of economists including Stanford University economics professor Nicholas Bloom.

Space for rent

The disparities have upended the commercial real estate market, where empty offices and the fastest pace of interest-rate hikes in a generation are leading to a debt crisis among some landlords. A McKinsey report in July explored the differences among cities, showing that office-heavy areas of New York and San Francisco have suffered steeper declines in real estate demand, alongside lower rates of office attendance, compared with cities like Paris and Munich. The consultancy estimated that about $800 billion may be wiped out from the value of office buildings in nine major cities in a moderate scenario, and as much as $1.3 trillion as a worst-case.

The road ahead

In the U.S., Labor Day has emerged as a marker of a renewed push toward stricter office-attendance policies, and this year is no different. At the World Bank in Washington, President Ajay Banga wants workers back four days starting this week. Even a company like Workhuman, which provides worker-recognition programs and prides itself on listening closely to employee concerns, has asked most of its staff to come back to offices twice a week beginning this month.

“The summer is wide open, then things normalize in September,” said KeyAnna Schmiedl, Workhuman’s chief human experience officer.

But any leader who keeps hoping things will get “back to normal” will be disappointed, because the workplace is fundamentally different now. Office occupancy rates have plateaued in the U.S. at half of pre-COVID levels. Lobbies are ghost towns on Fridays. Business leaders grumble about the effects of working from home, but they also know it’s now ingrained, according to a new survey by the Federal Reserve Bank of New York. Work is no longer a place people go, it’s a thing they do — and when, where and how it happens is no longer written in stone.

“COVID was a portal we walked through,” said McKinsey’s Kirschner. “And we’re not going back.”