Today’s Soapbox opinion comes from Paulo Bichucher, co-Founder at Yuca.
Contxto – Covid-19 provided what some are considering to be the final blow to retail landlords, accelerating the switch to online commerce. Now, offices are in the spotlight. Will this pandemic accelerate the rate at which people move from the office to remote work, ultimately eliminating the need for physical space?
We have been flooded with news of firms considering a permanent switch to remote work. Mark Zuckerberg did a 45 minute livestream on what remote work would mean for Facebook. Some companies, like Nubank, Twitter, Google, and XP Investments, have been working remotely for a long time (if not forever).
Would this shift alter not only where we work, but also where we live and how we live?
1. Working From Home (WFH) is not for everyone
There’s no doubt that WFH can increase productivity. However, not every task needs to be efficient, and not all work is about being productive.
Research has shown that WFH increased productivity and happiness for employees whose output can be easily tracked, such as call-center reps, sales, and developers
It also increased for senior managers, who tend to have more established lifestyles (i.e. married, children, etc.) and are self-motivated (although many parents like a fair distance between their professional and personal lives).
Knowledge and creative workers tend to resist this idea, as well as the younger generation. Being around others and hearing their perspectives gets their creative juices flowing. It is known that face-to-face interaction tends to be the best way to tackle hard problems to solve, and to develop a team culture.
What about young workers? Well, they crave socialization. They still require supervision in their early years.
Even in Mark Zuckerberg’s recent live, in which he shared the research with Facebook employees surrounding remote work, the most junior workers were not keen on a full WFH schedule, and he agreed, thinking that college grads are still needed in the office.
The same research showed 40 percent of employees were very or somewhat interested in going fully remote. But not everyone could, or would, given circumstances beyond Covid.
What professionals really want is flexibility (like everything else in the sharing economy), not set policy.
2. Flexible hours will become widespread, reducing future demand for workspace
The pandemic forced most managers to use remote work for the first time, even if they were skeptical about their teams’ productivity.
However, after gathering real evidence about how remote work can lead to thriving, and when it does not, managers will issue new policies that will allow subset of employees to tailor their office presence to their own schedule.
Fewer people at HQ means less space, but there is still a trust experiment to be validated for when social distancing eases.
Many mature companies are currently renegotiating their emptied office’s lease to save cash, but hardly reducing their size. CFOs are targeting future scaling without adding extra space, winning back much-appreciated margins in the long-run.
3. Remote work as a hiring and retention strategy (and as a reduction of labor expenses)
Everyone knows in the startup world how competitive it is to get tech talent, especially in Latin America.
Facebook, which according to Mark Zuckerberg has no problems with hiring, says it is now opening smaller offices in alternative urban hubs to be closer to local talent. That way it can pool workers from diverse regions, without relocating them to New York or San Francisco, while paying market wages of these smaller hubs.
We can expect the average developer salary grow more slowly, as labor shortage will not be an issue.
This policy will also help retain talent, attracting engineers looking to settle down or who want for a more suburban life. A huge preservation of training costs, company knowledge, and culture.
Thus, by improving retention, reducing hiring costs, and bringing employees at a lower wage, remote working companies will reduce their future talent expenses.
(It is fair to say that I do appreciate Mark’s assertion that remote work helps distribute wealth away from major cities, a big win for often ignored regions.)
4. Remote work has already changed how we travel and how we relate to the office
Exurbs will gain more space as a travel destination, as Airbnb’s Brian Chesky stated, making tourists choose affordable places close to home to travel.
So no more treasure hunt for discounted overseas plane tickets. Travelers will look for nice cabins in the woods or beachfront houses to spend their time with friends and families. These types of trips will probably occur much more frequently than that trip abroad twice a year that many Millennials used to save for.
Business travel is (almost) completely gone with this crisis. Conferences and meetings moved quite rapidly to an online format. I am unsure how much of it will go back to offline. Online interaction has proven to be a highly effective format for speaker series and meetups. The same can’t be said about massive conferences and trade shows.
As for the future office, teams will keep using this space to network and harness collective knowledge for creative problem-solving. Offices will be designed to spark creativity and socialization, like Nubank’s, rather than devised to emulate a Foucault’s experiment on power and control.
Co-working spaces led the way. They were initially built to cater to the first independent professionals to have flexible work hours. Even so, they looked for office space, searching for infrastructure and a group of like-minded people.
5. Remote work will change how we live
Grupo Zap’s recent study on Covid’s impact on real estate trends has great insights into consumer’s housing preferences. Even though the market has frozen for the time being, jeopardizing the data and the insights it generates.
Overall, buyers are delaying their acquisition by over 10 months, and renters are postponing their move for another four months. However, what’s most interesting is the change in housing preferences after Covid.
For renters, how close their home is to work represents the main desire after the crisis. As for the combined demographic (buyers and renters), how close their new home is to retail and services becomes important. One reason might be the realization of a better work-life balance comes with the absence of commuting.
Co-living, funnily enough, already had proximity to work, and retail and services as its main value proposition. At Yuca, a co-living startup, 55 percent of tenants have opted for this housing model because of work proximity.
Nevertheless, city living goes beyond being close to work. Co-living tenants often chose to spend their lockdown with relatives. But of those who stayed, a third reported to have done so because they said they would feel lonely. Of those who left, 25 percent returned because they were feeling lonely.
Community living provides other needs beyond shelter. It gives its residents the opportunity to build meaningful connections in a world plagued by loneliness. With social distancing measures easing, humans will search for more connection outside of work.
6. Different countries, different realities
Levels of urbanization and economic development are positively correlated. Concentrating output and housing in particular areas generates savings in infrastructure, in retail (even for e-commerce) and in services, and allows for talent to concentrate, creating agglomeration economies.
While the United States has several urban hubs that have the wealth concentration to achieve such economies of scale. This is hardly the case for Latin America.
A huge part of our countries’ urban population is concentrated in their largest city. That’s 7 percent for the US, compared to 12 percent for Brazil, 21 percent for Mexico, 36 percent for Argentina, and so on.
This leaves smaller cities with a smaller pool of talent, services, and infrastructure to allow for a nationwide remote work strategy.
This will change of course. Yet, these monumental shifts take many years (if not decades) to happen. Developing economies will be late adopters, relying on increased urbanization for some time before switching to a more distributed economy.
Urbanization trends won’t take 20 years to go through massive shifts anymore, but they won’t change in the next five either.
7. Don’t forget Amara’s law
Reading the current avalanche of predictions online, I am quick to remember the famous law Stanford’s futurist Roy Amara coined: We tend to overestimate the effect of technology in the short run and underestimate the effect in the long run.
I am far from an economist, urban planner, or a futurist. However, I am certain Covid-19 is not forever, so any change stemming from social distancing will phase out once lockdown measures ease. This pandemic is the best time to boost remote work adoption but is far from the real world post-virus.
What started with a pandemic, then took the form of an economic crisis, will finally create a wave of new technology and policy. All will drive significant change in how we work, and how we live, gradually, then suddenly.
Nevertheless, for the next few years offices will still exist and homes will still be in the big cities. There are still large fundamental obstacles and behaviors that will take some time to overcome, giving founders enough time to understand where the next generation of real estate “consumers” will go.