December 7, 2021

Tomer Aiderapp

Consummate Business Technicians

The Economic Impact of a Hybrid Office

The hybrid office, an arrangement that combines remote and in-office work, seems poised to become the new normal for many white-collar workers. This model aims to use what we learned about workplace productivity and work-life balance during the first year of the COVID-19 pandemic to create a new setup that maximizes the benefits and minimizes the downsides of both in-office and remote work. Hybrid work, of course, will have its own economic pros and cons.

Key Takeaways

  • As with any widespread upheaval, the shift to a hybrid model will create economic winners and losers.
  • Both employers and knowledge economy workers stand to save money with hybrid work.
  • All the businesses that help facilitate this new model—such as technology companies and office designers—have an opportunity to increase their revenue.
  • Workers and companies that used to provide services and space to full-time offices and their employees may have to find new sources of income, and business districts might not return to their pre-pandemic character.

Hybrid Workplace Winners

Working from home during the pandemic allowed businesses and employees who do their work on computers, by phone, and through videoconferencing to conduct a real-time experiment on the necessity of going to a central office five days a week. Researchers and analysts have studied their outcomes and determined that continuing to work remotely at least two days a week could benefit the following groups.

Employers

Companies that adopt a hybrid workplace stand to save an estimated $11,000 on each employee who works remotely half of the time, according to Kate Lister, president of Global Workplace Analytics and an expert in helping employers optimize flexible and distributed workplace strategies. The savings comes primarily from increased productivity but also from real estate savings and reduced absenteeism.

Knowledge Economy Workers

Knowledge economy workers in a hybrid workplace also stand to benefit financially. Working from home can save thousands of dollars annually on car maintenance, car insurance, public transportation, work attire, and eating out, according to FlexJobs, a job search website for remote and flexible jobs. Lister estimates the potential savings at $600 to $6,000 per worker. She also estimates that by working remotely half of the time, employees can save the equivalent of 11 workdays per year in the time they would have spent commuting.

Office Architects and Designers

Many offices will need to be redesigned to become effective hybrid workplaces and reduce the potential for spreading contagious illnesses. Natural lighting, greenery, indoor air quality, and density are all important components of a workplace that supports both mental and physical health, according to Rachael Bauer, a senior associate at Weber Thomson Interior Design Studio.

Rebecca Hinds, a self-described “organizational physician” who helps companies build their cultures and grow, writes in a column for Inc. that the open office layout that many employers choose is the wrong way to go. It’s been shown to decrease collaboration and face-to-face interaction, two key reasons many employers insist that coming into the office is good for business. Plus, employees who work in these spaces may end up taking more sick days than those who work in closed layouts.

Technology Companies

A hybrid office may require many companies to improve their conference room technology so that remote and on-site employees can communicate effectively. Companies may need to upgrade their videoconferencing software as well as their conference room monitors, speakers, and video cameras. In addition, workers who will be splitting time between the office and remote locations will need speedy laptops, high-speed wireless internet, and hot spot plans, if they don’t have them already.

Cloud computing solutions that allow employees to work effectively and securely from anywhere will continue to be essential. Workplace management software will also become important for making sure there’s enough space for everyone who plans to come to the office on a given day. And high-tech sensors can monitor everything from office occupancy and utilization to indoor air quality to help companies manage new and evolving needs in the workplace.

Home Improvement Companies and Contractors

If people continue to work from home more often than they did before the pandemic, they are likely to continue to spend more money on their homes. In 2020 spending more time at home because of COVID-19 meant adapting one’s space to new uses, paying more attention to home problems, and generating savings from reduced travel and entertainment that could be redirected into home projects.

Once companies clarify their policies on hybrid and remote work, we may see additional spending on home improvements people did not want to make for a temporary situation but are comfortable investing in for long-term use, such as remodeling or adding home office space. Also, people may choose to relocate if they won’t need to commute to an office five days a week, and renovations often accompany home purchases.

Real Estate Agents

The ability to work remotely during the pandemic combined with historically low mortgage rates has already generated a rush of buying and selling homes since the pandemic began. Zillow Research has observed a “great reshuffling” toward more affordable areas, where people in expensive markets have moved farther from downtown, and people in less expensive markets have moved closer to downtown.

“Many hybrid workers, especially those raising families, would rather live in outlying areas and possibly make a longer drive to the office a few times a week,” says Kristina Morales, a realtor in Ohio and California. “The increased demand from those workers has driven single home prices in those bedroom communities through the roof.” Morales has already had a number of clients relocate due to hybrid or remote work, going from Cleveland to Detroit, from a more expensive to a less expensive area of Orange County, Calif., and even from the country of Dubai to Columbus, Ohio.

Ryan Swehla, cofounder of central California commercial real estate investment firm Graceada Partners, based in Modesto, has observed this dynamic as well. “Hybrid work is probably having the greatest real estate impact in the Bay Area, more so than anywhere else in the country right now,” he says. “San Francisco and Silicon Valley are extremely expensive places to live, so alternative cities like those closer to Sacramento offer some workers the opportunity to commute once or twice a week and live with a much cheaper monthly housing expenditure.”

That’s why cities such as Modesto, about 90 minutes from downtown San Francisco, have seen a 20% price increase in the past 12 months, Swehla says. All of these buying and selling transactions are, of course, great for the real estate agents they’re keeping busy.

Office Furniture Suppliers

Commercial office furniture makers took a big hit early in the pandemic and could not easily pivot to selling directly to consumers. Those that have been preparing for post-pandemic office design stand to benefit.

“Purchases of standing desks, ergonomic office chairs, and other home office equipment via e-commerce channels are booming like we haven’t seen since March through August of 2020,” says Ron Wiener, CEO of iMovR, an ergonomic workstation company that makes migratory personal workstations. “Rather than a small group of people deciding what furniture 2,000 employees will be working at, the process has become democratized, with each employee choosing what fits their home office space and decor and then filing for reimbursement or stipends,” Wiener says.

Commercial furniture suppliers that already had a diversified business model or are able to adjust to changing demand should succeed if hybrid work catches on. Miller Knoll (formerly Herman Miller), for example, has developed new collections designed for flexibility as companies figure out how to redesign their offices for hybrid work and ongoing uncertainty.

Miller Knoll is also diversified into home, government, education, workplace redesign consulting, and healthcare, selling nurses’ stations, exam room chairs, procedure and supply carts, and more. In other words, the company’s success does not depend on bulk orders for large corporate offices. Though the company’s stock price plummeted from $48 per share in November 2019 to $18 in April 2020 as COVID-19 spread worldwide and offices shut down, it bounced back to $48 by May 2021.

Hybrid Workplace Losers

While many companies and their employees are likely to achieve significant savings by spending less time in the office—and others may regain or increase their incomes—others naturally stand to lose from hybrid work. Many of them are low-wage workers without a college degree.

Economist Joseph Schumpeter describes this aspect of capitalism, whereby overall progress always comes at someone’s expense, as “creative destruction.” Businesses and workers in these areas may suffer in the short term and possibly in the long term. However, many will adapt and become successful again by changing locations, transferring their existing skills to different customers, or retraining and entering different lines of work that are in greater demand.

Office Cleaning and Maintenance Services

Anyone providing sanitation services has been an essential frontline worker during the pandemic. These individuals have put themselves at increased risk of contracting COVID-19 and have had to work with stronger, virus-killing cleaning agents with possible adverse effects on those who handle them.

Many lost their jobs or had their hours reduced because of the pandemic. However, with more people working from home, there could be greater opportunities in residential cleaning.

Public Transit

Public transit workers and people who rely on public transit experienced major cutbacks in service when the pandemic began, and it’s unclear whether that same level of service will ever return. The challenge is even more pronounced in places such as California, where public transit ridership had already been on a years-long decline.

If workers never return to offices at the same level as before—and if they work more flexible hours—transit demand may need to get a boost from something else to remain sustainable. Additionally, traffic could worsen as more people who do return to offices and nearby businesses that support them are forced to drive to work.

Food Service Workers

The pandemic hit food service workers particularly hard. If offices continue to delay reopening and ultimately reopen at a greatly reduced level, there may be fewer jobs for them. NBC News reports that those likely to be affected include people who work for vendors that provide cafeteria workers to large corporate campuses, as well as all the restaurant, coffee shop, and bar employees at establishments that typically cater to the office crowd.

Downtown Neighborhoods

Downtown areas, central business districts, and nearby neighborhoods that were thriving before the pandemic could become less popular if the appeal of living near and working in major employment centers dwindles, and businesses such as restaurants, bars, and coffee shops that largely rely on nearby office workers don’t come back. Indeed, many of these neighborhoods have already changed dramatically because of the pandemic, despite government subsidies such as the Paycheck Protection Program and the Restaurant Revitalization Fund geared to help keep these businesses afloat.

A number of major companies have reduced their corporate office space. The list includes Target, REI, CVS, Ralph Lauren, Old Navy, and Nordstrom. Commercial real estate firm CBRE reported that as of July 2021 the only major U.S. office market whose tenants’ demand for square footage exceeded 2018-2019 baseline levels was Boston (though Denver was close, and seven markets showed notable gains in the first seven months of 2021).

Still, a shift away from working in concentrated downtown areas could create new economic opportunities around the satellite offices that many employers, including Apple, REI, and Google, are opening or expanding. “Companies are facing a lot of office relocations right now,” says Wiener. “We’ve talked to many that are building more satellite offices in the ’burbs, to shorten commutes for employees that already were living out there or have moved out of the crowded downtown areas with the COVID trends.” Employees benefit from more space, easier commutes, and easier parking.

“Bottom line: Employees feel safer and are more likely to stay with the company when given the option to work at a smaller facility that’s closer to where they live,” Wiener says.

Organizations That Are Slow to Adapt

Numerous organizations are making transformative changes in response to both the pandemic and the increased awareness of workplace inequities related to race, gender, and ability. Companies that remain stuck in their old ways may find themselves struggling to attract and retain talent if they don’t address the needs of a diverse workforce.

“Economic losers will be organizations that are slow to change or adapt—ones who hedge their bets or pretend to embrace hybrid or remote-first work but who don’t actually put the systems, policies, and resources in place that are needed to make it successful,” says Wendy Ryan, CEO of Kadabra, a leadership and change consulting firm based in San Jose, Calif. “Organizations who embrace a human-centered approach to designing their workplaces, schedules, and in-person collaboration requirements are going to be best positioned to thrive over the next 20 years.”

Ryan worries that people who identify as female, BIPOC, disabled, and/or neurodivergent will be the most likely to lose out on opportunities for development, sponsorship, and promotions at organizations that don’t invest in making hybrid or remote-first work successful for their employees.

What Types of Businesses Stand to Benefit From a Hybrid Workplace?

Here are a few:

  • Office architects and designers
  • Technology companies
  • Home improvement companies and contractors
  • Real estate agents
  • Office furniture suppliers

What Types of Businesses May Suffer From a Permanent Shift to Hybrid Work?

Blue-collar workers may be particularly affected because of the impact of hybrid work on businesses like these:

  • Office cleaning and maintenance services
  • Corporate food services
  • Downtown businesses
  • Public transit

How Could a Hybrid Workplace Affect Employee Well-Being and Job Satisfaction?

A hybrid office may have a positive effect on employees’ sense of well-being and job satisfaction by giving them greater flexibility to work in whatever environment helps them excel. That might mean coming into the office to collaborate with colleagues on a new project one day, then working from home the rest of the week.

It could also mean reserving a desk at the office to get away from home life distractions most days, or when there’s an important video meeting that will be more effective using the company’s conference room technology.

A hybrid office could provide economic benefits from greater efficiency, productivity, and mental health, as well as reductions in absenteeism and presenteeism, stress-related illness, burnout, and employee turnover.

The Bottom Line

Companies may attempt to commit to a certain model—be it all office, all remote, or hybrid—but find themselves adjusting as they learn more about what works and what doesn’t. It’s too soon to tell whether hybrid work will be a fleeting idea or become the new normal, as companies and employees still trying to discover the best ways of working during the pandemic. We may all have to adapt and become more comfortable with uncertainty as these experiments play out.