Businesses Still Need Offices

To win and retain tenants in the 'new normal,' it's your job as a building owner to make the case for why tenants need the office.

Your top selling point: Unrivaled connectivity.

The COVID-19 pandemic has forced all businesses to do something they have been very reluctant to do before: Embrace a work-from-home environment.

As of late June, 42 percent of the entire labor force in the United States was working from home on a full-time basis. That was almost double the share (26 percent) of U.S. laborers who were working on-site, according to studies conducted by Stanford University economist Nicholas Bloom:

For building owners in the office space market, predictions like these can seem extremely daunting. If there is no office, what, exactly, do you do?

Simply put, you need to communicate the value of not only your building but in office space in general. To keep and win tenants in the world of COVID-19, you need to educate businesses on why the office is necessary in the first place. 

At the top of that list is something that no employee can get at home:

Fast and reliable CONNECTIVITY for their most critical applications.

The Office Space Industry is Not Collapsing

If you're about to have a panic attack about the future of the office space industry, listen to these words from Paul Leonard:

"I don't see a situation where offices completely die,” said the managing consultant at real estate research firm CoStar.

And here's another positive statement from Martin Pupil, who serves as the executive managing director of Stream Realty Partners in Los Angeles:

"All companies will need office space. The key will be flexibility in use. The evolution is not about remote, but moving away from the traditional lease to a flexible one."

In the midst of the initial coronavirus outbreak, the news about the office space market was not good. In a matter of one week in mid-May, two major tech companies announced monumental shifts in the way they would approach their work environments going forward.

First it was Twitter, which announced it would allow all employees to work from home on a permanent basis, even after shelter-in-place orders ended. This move affected a majority of the company's 5,100 employees, except for some workers whose jobs would require a physical presence in the office.

A week later, Facebook CEO Mark Zuckerberg told employeesthat he expected up to 50 percent of the company's 48,000 employees would work from home permanently in the next 10 years. During a staff meeting that he streamed live on his Facebook page, Zuckerberg said:

"It's clear that COVID has changed a lot about our lives, and that certainly includes the way that most of us work. Coming out of this period, I expect that remote work is going to be a growing trend as well."

For the first time in a decade, net absorption was negative in the second quarter of 2020, according to a Colliers International report. In its summary, the company wrote:

"The longer the pandemic lingers, the greater the likelihood that many of the required behavioral changes that were perceived to be temporary, such as social distancing, online meetings and working from home, will become more entrenched into the culture of the office. Similarly, the longer the pandemic, the greater the likelihood that firms will implement more longer-lasting changes in their occupational portfolio, and we expect to see notable variations in performance from market to market."

The fear among office space executives was that more and more businesses would follow the moves by Twitter, Facebook and others, setting off a chain reaction that would have huge negative consequences for building owners. 

As the first outbreak of the coronavirus began to subside, though, the real long-term outlook for the industry began to be revealed. While many companies remained cautious of bringing all employees back to the office -- if they were even allowed to in their state -- some began planning for a long-term, office-based future.

In August, Amazon announced it would spend $1.4 billion to expand their physical footprint in six of its tech hubs. The investment in Phoenix, Manhattan, Detroit, Dallas, Denver and San Diego will create 3,500 new jobs at Amazon in both corporate and tech positions.

The expansions will include an additional 905,000 square feet of physical office space the company will occupy.

Amazon believes that while remote work is possible—and will certainly be a part of the future of work—it isn't conducive to everything the company strives to do. Ardine Williams, Amazon's vice president of workforce development, explains:

"The ability to connect with people, the ability for teams to work together in an ad hoc fashion -- you can do it virtually, but it isn't as spontaneous. We are looking forward to returning to the office."

Owen Thomas, the CEO of Boston Properties, agreed. In mid-May, he told CNBC:

"The ability to mentor younger employees, the spontaneous collaboration and creativity that occurs, and also the culture that companies develop, it's very difficult to do it when we're all on Zoom."

Thomas pointed to companies setting up satellite offices in the suburbs as proof to back his claims that companies want an office-based environment. He continued:

"Companies are saying, 'Look, we don't want to work from home. We want to have our people in a physical office, and so we're going to go to the cost and the expense of leasing something in the suburbs on a short-term basis so we can put them all together.'"

The shift in thinking, as Bloom explains, will actually result in a need for more office space.

"Given the need for social distancing, the firms I talk to are typically thinking about halving the density of offices, which would lead to an increase in the overall demand for office space," he said.

Remote Work Doesn’t Work (for Everybody)

The assumption is that employees love working from home, and they'd prefer to do it full-time. But that's simply not true.

A Gensler study found that only 12 percent of workers in the U.S. want to work from home full time. What's more, 70 percent of people said they'd prefer to work in an office setting for the majority of their week.

Paul Leonard, a managing consultant at CoStar, said he believes most companies will adopt a hybrid approach to the workweek. He predicted that employees would telework roughly 40 percent of the time.

In addition, not all employees have the ability to work from home, or to do so effectively. Only 51 percent of people included in Bloom's survey said they were able to work from home at an efficiency rate of at least 80 percent. 

Multiple surveys conducted in the UK early in the pandemic explained some of the reasons why people prefer to work in the office. 

The Institute for Employment Studies in the UK conducted a study that found:

• People were eating less healthy, consuming more alcohol and exercising less frequently.

• People were working irregular and long hours that has led to poor sleep.

• People weren't happy with their work-life balance while working from home. They also felt isolated.

• People were experiencing increased musculoskeletal pains in their neck, back and shoulder.

The work-from-home outlook was the worse among younger employees, according to a Skillcast survey. A majority of employees under the age of 35 said they consistently had trouble remaining motivated while working from home. 

All this is why the husband-and-wife team of David and Ashley Brown launched their company Good Space in London during the pandemic. As David Brown told Strategy+Business recently:

"Working from home, for a percentage of the population, is the worst possible option. The people who are running large organizations saying, ‘Oh, we’ll just move everybody remote and we’ll save money and our people will be really effective!’ probably have a really nice place to work in their homes. They might have child care; they have a big enough house that they can be separated from the distractions.

“But the majority of their employees are not in a situation where working from home all the time is really effective. For three months in a pandemic, you can make it work, but if [my] company [were to] say, ‘This is it,’ I’d immediately be looking for a new job.”

These are all things that you as a building owner can use in your marketing to retain and attract new tenants.

Welcome to a Tenants’ Market

While the future isn't as gloomy as some would have you believe, it would be naïve to think the pandemic won't have a lasting effect on the office space market. Moody's Analytics has predicted that not only will vacancy rates continue to rise, but rents will decrease as well. 

Office vacancy rates have been well above the historic average of 10 percent ever since the Great Recession, but they've improved in recent years. From 2010 to the end of 2019, vacancy rates improved only slightly -- from 17.6 percent to 16.8 percent.

With the pandemic, though, it's expected the rate will rise to historic levels. Victor Calanog, the head of commercial real estate economics at Moody's Analytics, says he believes the vacancy rate will rise all the way to 19.4 percent by the end of this year. It will then continue to rise until it hits 20.2 percent at the end of 2022.

At the same time, office rents are expected to decline sharply, too. This year alone, Calanog predicted rates will drop by 10.5 percent overall. In larger cities, this could be even worse. New York City, for example, could see prices tumble a whopping 20.3 percent.

This will obviously have a very large immediate effect on the office space market in general, and the bottom line of building owners in the sector.

One thing it will also do is create a strong renters' market. Tenants will have the power to ask for better rates, better lease terms and better amenities. 

The pressure will therefore be on building owners to differentiate themselves from their competition.

The best way to do this is to provide tenants with powerful, reliable and
redundant connectivity that employees simply can't get at home. 

It's on building owners in the office space market to not only provide this connectivity, but to market the reasons why it's so important to current and prospective tenants. 

Homes Can’t Provide the Connectivity Business Needs

Is internet connectivity really an issue for people at home? Doesn't everyone nowadays have access to the internet?

Yes, most people do have access to internet in their homes. And, compared to the rest of the world, that internet speed is pretty good.

A Speedtest.net study found that in August, the average internet download speed in the country was 156.61 Mbps. That was good for 11th-best in the world. The average upload speed, meanwhile, was 58.96 Mbps.

The problem with averages is they don't often represent the true picture. Extremely high speeds in some locations, in this case, can bump the average up, while extremely low speeds can bring it down. 

Generally speaking, internet speeds are the fastest in cities, where the network backbones are housed, and ample lines are run. Thirty of the 100 most populous cities in the United States had a median download speed of at least 100 Mbps for the second quarter of 2020.

At the same time, only three had median upload speeds above 36 Mbps -- Kansas City, Missouri; Jersey City, New Jersey; and Lincoln, Nebraska. 

Most employees don't actually live in the cities in which they work, though. And that's where the internet speed problem can get even worse. While most direct suburbs of major cities have at least semi-fast internet, speeds consistently dip the further and further away from a city center you go.

In 2019, Microsoft released a report that indicated 162.8 million people in the U.S. didn't use internet at broadbands speeds. That was a much higher number than the FCC estimates of 24.7 million people. The FCC defines "broadband" speeds as 25 Mbps.

In other words, while America's average internet speeds are pretty fast, and the internet speeds in most of our major cities are fast, they aren't nearly as fast or reliable outside of cities. This poses a huge long-term challenge for the work-from-home culture, as most employees live in areas where internet speeds are just not sufficient.

Bloom described this further in his study for Stanford:

"Many Americans also lack the facilities or sufficient internet capacity to work effectively from home. More than half of those surveyed who are now working from home are doing so either in shared rooms or their bedrooms. And only 65 percent of Americans reported having fast enough internet capacity to support workable video calls. The remaining 35 percent have such poor internet at home – or no internet – that it prevents effective telecommuting."

What Do These Speeds Mean?

The obvious follow-up question you may have is: What do these speeds mean? Faster is better, obviously, but what's the real difference between 25 Mbps and 100 Mbps? (75 Mbps, of course!)

Unless you're a techie or in the world of networking or IT, it's hard to understand what that difference in speed means in practical terms. Internet speed doesn't just determine how quickly you can use programs or functions that rely on the internet; it also determines whether certain programs/functions can work at all.

One thing to understand about home internet speed is that it's shared among all users and devices that are being used on the network. This includes your work computer, your smartphone, your kids' smartphones and tablets, video game systems, and your smart TVs and/or streaming devices.

All the active devices on your network will share your home internet's total download speed. The heavy-duty tasks -- such as video streaming -- will take up the majority of this bandwidth, leaving what's left to the other devices.

A Deloitte study found that at the end of 2019, the average U.S. household had 11 connected devices. And all 11 of those devices are sharing the households' internet speed.

This may not have been a problem for people who worked from home in the pre-pandemic world, when kids were at school during the day and their spouse may have worked in an office. If everyone's home during the day, though, it can get out of control real fast.

Kids do virtual learning over video conferencing, then stream shows when they're done school. Meanwhile, you and your significant other may be trying to conduct your own video conferences for work at the same time.

Can your network handle that? Let's take a look: 

If you have more than 10 devices on your network, you'd need internet speeds of 150 Mbps in order to conduct effective video conferences while also working on programs that are based in the cloud. If you have fewer than 10 devices, you could get away with 75 Mbps in most cases.

While slower internet speeds could handle households with fewer devices, it might be tough to conduct video conferences without significant lag. 

Now, let's go back to the Speedtest analysis we talked about before. Not one state in the U.S. has a median download speed of at least 100 Mbps (New Jersey led the nation at 99.11), and only 30 cities had median speeds above that mark.

And remember, you need 150 Mbps if you have a household with multiple people using multiple devices at the same time. 

Home Internet is Unreliable

Internet connectivity isn't just about speed, though. It's also about reliability.

As most people know, just because you have purchased 100 Mbps internet service from your local provider doesn't mean you're getting that speed at all times. Home internet networks are prone to spikes in service, especially during peak usage time.

During the coronavirus pandemic, home internet has become even less reliable. A BroadBandNow report from March found that internet reliable plummeted across the country as the COVID-19 outbreak began, forcing millions of people to stay in their homes.

From March 15 to March 21, 44 percent of 200 cities the company analyzed "experienced some degree of network degradation … compared to the 10 weeks prior." In New York City, median download speeds fell by 24 percent in that time period.

Many Internet Service Providers (ISPs) have also reported a significant uptick in heavy-duty internet usage. In March, Verizon said usage of "collaboration tools" over its network increased by 47 percent. 

Most ISPs have said their networks can handle all these extra devices and increased usage. But even the BroadbandNow report does point out an obvious gray area:

"Many major ISPs have publically (sic) reassured users that they are more than able to keep up with the increased demand, and while [that] looks to be largely true across the most populous areas of the U.S., it remains to be seen if rural communities reliant on legacy technologies such as DSL will continue to enjoy the same relative stability we have seen over the past week."

As any business owner knows, reliability is key to getting work done. This is especially true for remote work, where strong internet is essential to collaboration. 

When networks stop function -- or even slow down considerably -- that leads to a pause in productivity. It's sometimes referred to as "downtime," and it's costing businesses a load of money.

Downtime is Expensive

In May 2017, a power surged knocked out British Airways' IT system at both Heathrow and Gatwick airports in London. The unexpected downtime forced the major airline to cancel nearly two-thirds of all its flights for May 27, which just happened to be a busy bank holiday in the UK. 

That interruption of internet service cost British Airways 80 million pounds, or roughly $102.19 million.

OK, so maybe that's an extreme example of the cost of internet downtime. Or is it?

Global research firm Gartner says internet downtime costs businesses an average of $5,600 per minute! Yes, per minute. Similar research from Avaya finds that internet downtime can cost a company anywhere from $140,000 to $540,000 per hour. 

Those are just the costs associated with lost revenue a company experiences during this downtime -- which can range from canceled flights, to lost internet sales, to lost credit card charges, to missed opportunities on sales calls and much, much more.

These numbers, again, could seem extreme, but there's an easy way to figure out what a company's cost of downtime would be.

The equation to complete is this:

Lost revenue = (GR/BT) x I x T

• GR is gross yearly revenue

• BT is total yearly business minutes

• I is the percentage of your revenue impacted

• T is the number of minutes of the outage

For this example, let's assume the company's gross yearly revenue is $10 million, and it operates on a 9-to-5 weekly schedule. That means its yearly base minutes would be 124,800 (60 minutes each day, eight hours per day, five days per week and 52 weeks per year). We'll also assume that 75 percent of the company's revenue is impacted by the outage, and the outage lasts 35 minutes.

By using these figures, you would find out that this one particular 35 minutes of downtime cost this company $1,682.69. The higher a company's revenue, the more downtime will cost.

That number alone would be alarming, but there are a few other factors to consider.

First, this calculation does not take into account any labor costs. If downtime prevents employees from doing their job, then the company will basically be paying them to do nothing. The company may even need to pay them overtime to complete their tasks.

Second, once employees are knocked off task, it takes them time to get focused again. A UC Irvine study found it takes the average person 23 minutes to refocus after an interruption. Carnegie Melon University found cognitive function can decrease 20 percent after an interruption. And this has an actual cost associated with it, too.

Finally, the above lost revenue example represents a best-case scenario for our hypothetical company. It represents what would happen to that company if all employees were located in one central office that experienced that downtime. 

With remote work, downtime can happen all day long to varying degrees. One employee may be having internet trouble at their house one hour, while another employee experiences trouble the next hour. This staggered and consistent downtime can destroy the productivity of a company, and it's hard to quantify exactly how damaging it could be.

What Does This Mean for Office Building Owners?

It's easy to see how important connectivity is business owners, both in terms of speed and reliability. Most business owners will know this, too, and will therefore prioritize best-in-class connectivity when they're considering their next office space lease.

This provides a prime opportunity for you, as a building owner in the office space market, to stand out among your competition. You can use all of this information about the downsides of remote work and the importance of connectivity to your advantage when you're trying to retain current tenants or win new ones.

By partnering with a company such as Elauwit Connection, you can ensure your tenants have best-in-class connectivity that is simply not available to their employees at home. In fact, it's often not even available to tenants through ISPs directly.

Not only is our connectivity fast (with download and upload speeds that start at 300 Mbps), but it's reliable, too. We provide backup connections so that if your network does experience a problem, you and your tenants won't experience any downtime at all.

What's more, you can own the network. This allows you to create extra revenue for your business while streamlining the connectivity process for your tenants. 

In the current office space environment, tenants will have a lot of power as vacancies increase and rents drop. You can continue to win tenants by delivering to them what they need the most -- connectivity.

Tenants are going to return to office spaces. Their needs in office space might be different than they were before the pandemic, but tenants are sure to return. 

But, just because they will return to offices doesn't mean that they'll return to your building. The buildings tenants choose are going to be the ones that provide them the one thing that they need more than anything else -- fast and reliable connectivity.