As Companies Reduce Remote Work, Tension With Employees Persists

More than three years after the Covid-19 pandemic started, returning to the office versus working from home still hasn’t settled down. There’s an ongoing tension around working from home between management’s need for innovation and discipline versus workers’ desires for more flexible arrangements and reduced commuting time. As urbanist and historian Dror Poleg likes to remind us, “commutes waste people’s most productive hours.”

The always-quotable Elon Musk is ordering employees back, saying working from home is “bullshit.” Interviewed on CNBC, Musk told remote workers to “get off their moral high horse,” since others like workers in auto factories, food service delivery, and home repair can’t work at home, a split he called “morally wrong.”

Morality aside, earlier this week, asset manager BlackRock told employees “we will shift to at least four days per week in the office” starting in September. They join JPMorgan Chase, Amazon, Apple, Disney and many firms who are requiring in-office work at least three days per week.

More companies are requiring workers to come in at least a few days per week. This “hybrid” style may end up as the new normal for offices, with uncertain impacts on jobs and careers, but the jury is still out.

The early stages of the pandemic saw experimentation with full-time remote work. But many senior leaders increasingly feel having staff together in the office is essential for company culture, and to generate new ideas and innovation.

In January, Disney CEO Bob Iger articulated what a lot of CEOs are feeling. In a memo ordering employees back at least four days per week, Iger wrote “in a creative business like ours, nothing can replace the ability to connect, observe, and create with peers.” This fear of lost creativity and competitive edge, along with concerns about onboarding new employees, sustaining productivity, and employee discipline all support moves to increase office-based work.

But if firms are ramping up the return to offices, why don’t the data for office use show it? Office occupancy, rental price, and employment data all show the ongoing tension between employers and employees. The indicators we have for office work have been static for over a year, and aren’t displaying a major upward trend.

One frequently watched indicator is Kastle Systems’ “Back to Work Barometer,” which measures office keycard entry swipes in ten metropolitan areas. Those numbers aren’t moving much. Kastle’s most recent occupancy estimate is 49.3%, up from 42.9% in late May 2022 but nowhere close to the base 100% for occupancy just before the pandemic.

A second data source comes from Placer.ai’s office visit data, which suggest somewhat higher levels than the Kastle data. But the two indexes don’t measure the same thing, and both are what economists call “noisy” measures (with small and imperfect samples and lots of other issues captured in the indicator). That makes them more important for viewing trends than they are for highly accurate measurements.

And like Kastle’s key card swipes, Placer’s office visitation data aren’t showing major increases. Its April 2023 numbers “remained virtually unchanged when compared to April 2022,” and “continue to hover around 60% of what they were four years ago” in the early stages of the pandemic.

A third set of indicators appeals to economists—market rents, new construction, and occupancy for commercial office space. These market demand-based indicators also show continuing weakness.

Commercial Edge reports the asking rents for offices space rose nationally an average of 2.3%. You might be encouraged by that—at least it’s positive. But the Consumer Price Index, a broad measure of overall inflation, rose in the same period by 4.9%. This means asking prices for office space actually fell in real dollars. In contrast, the CPI for that same period registered an 8.1% rise in household shelter costs.

Working from home’s pressure on central business districts means the national office rent increase actually is composed of two opposite trends—increasing office rents in the suburbs coupled with declining rates in central cities. And the national vacancy rate also rose, again with CBDs as the weakest performers.

It could be the increased company requirements for working in offices simply haven’t taken hold yet. Or it could be that workers—especially higher skilled, educated, and mobile ones—are resisting more in-office work, and companies haven’t figured out how to deal with that.

All of this comes in a very tight labor market, especially for higher-educated workers. Last month’s unemployment report showed an overall rate of 3.4%, while workers with a BA or higher had a 1.9% rate, an extraordinarily low number. Education levels are highly correlated with working from home, so that tight number is linked to the continuing weaknesses in office occupancy and rents.

BlackRock’s call for more time in the office shows us one side of the coin—employers often want employees back for innovation, culture, and control issues. But falling real rents and continuing high vacancy levels for office space, especially in CBDs, show resistance from higher-educated and higher-paid workers, enabled in part by a continuing strong economy.

We’ll see how this plays out if the economy weakens (or even enters a recession) under continuing rate increases from the Federal Reserve. But for now, employers may have a difficult time enforcing their desires for more employee time in the office.