Solve for Experience!
US office markets are not healthy. The symptoms include reduced demand due to remote work, eroding rental economics due to mounting vacancy and broken capital stacks. The pandemic was the catalyst, but technology is the true source of the suffering. Technology is where many aspects of white-collar work are now done. I asked Chat GPT to define the office and then I asked it to define the office in 1990. Here’s how it responded:
The Office
An office is a physical space where employees of a company or organization perform their work duties. It can range from a small room in a shared co-working space to a large corporate building with multiple floors. An office typically includes workstations or desks, chairs, computers or other equipment necessary for work, and sometimes meeting rooms or conference facilities. It is a central location where employees can collaborate, communicate, and carry out their daily tasks related to the company's objectives. With the rise of remote work, the concept of an office has evolved to include virtual or digital workspaces that allow employees to work from anywhere in the world with an internet connection.
The Office 1990
In 1990, an office would generally be defined as a physical workspace within a building where employees worked to carry out their job duties. It typically consisted of individual workstations or cubicles, shared spaces such as meeting rooms or break rooms, and administrative areas such as reception desks or filing rooms. The office environment in the 1990s was largely characterized by traditional organizational structures, hierarchical management styles, and a focus on efficiency and productivity. Computers were becoming increasingly common in the workplace, but many tasks were still done manually or with typewriters and fax machines. The concept of remote work was not yet widely accepted or practiced, and most employees were expected to work on-site during regular business hours.
What’s noteworthy in the first response is “…the concept of an office has evolved to include virtual or digital workspaces that allow employees to work from anywhere in the world with an internet connection.” In the second response, “Computers were becoming increasingly common in the workplace, but many tasks were still done manually or with typewriters and fax machines.”
Today, many aspects of work can be completed efficiently without going to a designated physical space (office). It seems counter-productive to employees to spend large amounts of time commuting to a physical place to do the things they can do from anywhere, hence this idea that employers must “earn the commute” from their employees. In light of all this, what is the role of the modern office? In a word: experience. Landlords and occupiers must both pivot away from the traditional idea of the office and focus instead on curating the kinds of experiences that make a difference, those which cannot be replicated via tech. What are these experiences? Well, they’ll vary by company, but in general, they will include things like in-person collaboration, in-person mentorship, in-person brand promotion, in-person culture building and other IRL activities. When the modern office is envisioned as an experience center, designed to provide and support the curated experiences that best suit a given company, the friction around RTO goes away. The employer has earned the employee’s commute.
Recently, I had the pleasure of hearing a presentation by leadership at Related Companies. Related Companies has a long development history that includes work in residential, hospitality and office. These days it integrates all 3 to create what it calls “Lifestyle office”. There is perhaps no better example than Hudson Yards in Manhattan. As I have been thinking about the future of office, it’s become increasingly clear to me that this is exactly the type of approach that wins. Hudson Yards is a turbo-charged experience center. Occupiers who choose to lease space there are not analyzing the physical space on the basis of cost/sf. Indeed, Hudson Yards continues to hit new highs when it comes to rental rates. No, the occupiers that choose Hudson Yards have done the heavy lifting to determine what experiences they need to provide their employees and they’ve chosen Hudson Yards because it best supports and promotes those experiences. And you know what, it works. Usage levels at Hudson Yards are substantially higher than in other office projects throughout Manhattan (or the US, for that matter). Employees are happy to be there.
Many employers have begun to express a strong desire to have their employees return to their offices. It’s very important they articulate the why behind this desire. And it can’t be to come and do the same work they’ve been doing remotely for the past 3 years…that’s just not a compelling, or perhaps even logical reason. Companies need to define the exact experiences they seek to provide for their employees and then create an environment that best supports these goals. We firmly believe there is now, and will continue to be, a need for people to connect together, to share common experiences that drive value, both for the employer and the employee. As a community (investor, occupier, advisor, government, etc.), we must begin at once to solve for experience. This is how US office markets begin to heal what ails them. The office will live on in its capacity to produce human IRL experiences. The sooner we abandon the old idea of the office as a place to perform work tasks, the sooner we realize its best future.