Remote working is on the rise, but the office remains indispensable

While the COVID-19 lockdown has highlighted the possibilities of home working, bringing people together in offices is still the best way to spur innovation and productivity, says Jonathan Bayfield.

Remote working is on the rise, but the office remains indispensable

Out on a run recently, streaming music through my headphones, I thought of the parallels between the music industry and the commercial office sector.

In the 21st Century, technology has significantly changed the way we listen to music. First, we abandoned our bulky home stereos for MP3 devices; now we listen to music predominately through smartphone apps.

The convenience enabled by the new technology allows us to access millions of songs at the touch of a button. But it’s also worth thinking about what we have lost amid the transition to streaming. Spotify and Apple Music can’t replicate the pleasure of opening a gatefold record sleeve or chatting to the friendly owner of the local record shop about the latest releases. This partly explains the revival of vinyl in recent years.

Technology cannot fully recreate the experience of collaborating and exchanging ideas with colleagues in person

Similarly, video conferencing technology has brought great benefits during the pandemic, enabling teams to continue to meet and network from home during lockdowns. But the technology cannot fully recreate the experience of working from an office, collaborating and exchanging ideas with colleagues in person.

The impact of COVID-19

The pandemic has created a significant working from home experiment, which is now entering its second phase. Across Europe, countries are re-imposing physical distancing measures to avert another wave of infections overrunning medical facilities.

The pandemic has created a significant working from home experiment

In the UK, cases had risen to over 17,000 per day in early October, with hospital admissions and infection rates rising across parts of England. The government has imposed a new tiered set of rules depending on the local rate of infection, while on October 19 the Welsh government announced a two-week national ‘firebreak’ lockdown. People have been told to stay home, while bars, restaurants and other ‘non-essential’ businesses will close until the lockdown measures are lifted.

Elsewhere, the Netherlands imposed partial lockdowns, closing bars and restaurants, while the French government has put in place curfews in Paris and other cities in the maximum alert zone.

Enforced WFH shines a light on the benefits and drawbacks

For many, the experience of working from home seems to be going better than expected, aided by new technology. This has raised questions about the future of the office, even beyond the current crisis. News reports are rife of companies planning to make home working the norm rather than the exception. It is not just forward-thinking tech companies like Facebook and Twitter1 either; even large financial institutions like JP Morgan acknowledge a return to business as usual is unlikely.

74 per cent of company directors would maintain increased home working after the coronavirus

In the UK, 74 per cent of company directors surveyed by the Institute of Directors said they would maintain increased home working after the coronavirus; over half said their organisation would cut their long-term usage of workplaces.2

It is not surprising, then, to hear reports of tenants looking to offload office space. According to Savills, corporate tenants in central London have tried to discard around one million square feet of commercial office space since the lockdown began in mid-March.3 It has been reported that just over a third of these attempts to sub-lease to the middle of June were in direct response to the impact of the virus.

Such developments are viewed as evidence of mounting structural challenges for the office sector. But it is also worth keeping in mind that cyclical forces are at play: in every economic downturn, occupiers seek to reduce real estate costs.

Clearly, the pandemic has highlighted some of the benefits of working from home, including the cost savings to businesses from reduced office occupation. Employees, meanwhile, save on the financial and temporal costs of commuting.

The WFH trend has exacerbated social inequality

But there are significant downsides, too. The trend has exacerbated social inequality. I am lucky to have a spare room to work in, but not everyone has space for a new workstation at home. And enforced WFH has not provided a better work-life balance in all cases. Many office workers have experienced longer working days, with more meetings and emails than previously,4 while controlled WFH studies in China have shown the much-reduced level of social interaction is not conducive to employees’ wellbeing over the long term.5

I saw someone post on social media that rather than working from home, they felt like they are “living at work”. And many of my London-based friends have commented on the drawbacks of reduced social interaction.

Why density matters for innovation

Offices bring other benefits beyond face-to-face contact. In particular, they provide an environment that facilitates idea sharing. Research shows bringing people together in dense clusters is the best way to spur innovation. Patents per capita are 20 per cent higher in metropolitan areas with twice the employment density.6 Patents are also granted disproportionately in larger urban centres, showing increasing returns in innovation with respect to population size.7

The creation of new ideas is a process that involves building on existing knowledge

Inventors and innovators don’t operate in isolation; the creation of new ideas is a process that involves building on existing knowledge. Per-capita increases in innovation rates show there are increasing returns to density in terms of innovation.8 The density and scale of urban centres “fosters interpersonal interactions, creating greater opportunities for enhanced information flows”.9

Moreover, in-person collaboration is necessary for creativity and innovation, according to Stanford academic Nicholas Bloom.10 His research has shown that face-to-face meetings are essential for developing new ideas and keeping staff motivated and focused.

Harvard University’s Edward Glaeser has also done a significant amount of work on this topic. His co-authored research discovered that when two people are in close proximity, they take in an infinitely larger amount of information by watching each other than when they are far apart.11 I have seen this first hand since lockdown with two new joiners in my team, where teaching them new tasks would have been much easier in-person than virtually.

More academic research supports this view. Co-located workers can learn more easily from each other and develop and test new ideas.12,13,14 Looking forward, Glaeser and his co-researcher Jess Gasapar have predicted that as telecommunications improve, the demand for face-to-face interactions will rise, and therefore the role of cities as centres of interactions will also likely increase.15

Why specific locations are important

In many cases, these effortless transmissions of ideas and values depend on sight or hearing. Spatial proximity (and hence urban density) facilitates the first kind, as it makes reciprocal relationships easier to start and maintain.16

Inventors moving into clusters substantially increase both their patent counts and citations

Dense urban areas seem to be especially good at generating new and unconventional ideas.17 Inventors moving into clusters substantially increase both their patent counts and citations.18 Even as new technologies diffuse, the local hubs that generate them hold onto disproportionate shares of employment in those technologies, particularly for higher-skilled jobs.19

Cities promote innovation. Various studies of technology clusters show inventors tend to live near one another. A recent academic study20 used mobile phone location data to show how Silicon Valley workers bumping into each other in coffee shops leads to an increase in patent citations by their firms.

In addition, urban theorist Richard Florida and demographer Gary Gates have found a city’s diversity has a positive and significant effect on high-tech growth.21 Large cities allow for a multitude of specialist services, and a better matching of workers to jobs and companies to customers. Indeed, the connection between urban density and earnings is understood to be a primary reason cities exist.22

This has led to more innovation within the same cities.23 New patents are five-to-ten times more likely to cite previous ones originating from the same metropolitan area.24 The process is self-reinforcing – the creation and concentration of knowledge in cities increases their attractiveness for educated, highly skilled, entrepreneurial and creative individuals who, by locating in urban office markets, contribute in turn to the generation of further knowledge spill-overs.25,26,27

Over recent years, there has been a remarkable increase in the importance of the knowledge economy

Over recent years, there has been a remarkable increase in the importance of the knowledge economy and the biggest, densest cities appear to have a comparative advantage.28 The importance of connecting in dense urban areas will only increase as knowledge becomes more important as an economic driver.29

Finding the right asset

The importance of city offices for idea sharing and innovation is well-established, then. But not all offices are created equal. Office design needs to move with the times.

Most people are required to spend much of their time creatively solving problems; building trust, culture and brand; and recruiting and training staff.  We need offices that facilitate these tasks and different, creative solutions are emerging.

As we have argued in a previous article, COVID-19 will accelerate existing structural changes in three ways:

  • Demand for low-cost locations and low-quality offices will fall;
  • Flexible working practices will increase;
  • Office space will be seen more like a service.

So, how do you find an office resilient to the structural trends being exacerbated by COVID-19? To draw and retain talent, markets must be well-connected places with good travel links. Finding a site that is well-connected will give companies access to the largest talent pool possible.

Furthermore, as detailed above, clusters of innovation drive economic growth. Being located in an area with similar firms will give your workforce easier access to information, helping to raise productivity. Central London is an excellent example.

Highly skilled people want more than just a place to work

But location alone isn’t enough. Highly skilled people want more than just a place to work. As well as spaces to connect and share ideas, services and amenities are critical inside and outside of the office. Today, and in the future, an office’s micro location is critical to location decision making. Denser locations tend to bring more amenities and a more engaging environment.  

Irrespective of social distancing, the days of battery-hen style cellular offices desks are over. Agility is key. Just like in our homes, we need different environments for different activities. Teams need spaces where they can form organic, temporary hubs for projects and space to co-work and collaborate, as well as places for individual tasks.

Closely linked to amenities is the issue of well-being. Any organisation’s greatest asset is its people – when their wellbeing is prioritised, greater productivity is likely to follow. Natural light subjects us to vitamin D. In a number of our office assets, we’ve increased natural light and try to avoid deep floorplans. Atriums are also a great way of introducing light and creating a focal centre. Greenery such as indoor trees can help promote mindfulness and create better indoor air quality – something natural ventilation also aids.

Future of the office

In the wake of the pandemic, many people have predicted the de-densification of offices and a move away from high-rise towers to lower-rise structures. Some have even predicted a renaissance for the suburban business park. Whilst driving to work and avoiding public transport during the pandemic is appealing at a time when safety is paramount, we expect this practice will reverse once an effective vaccine emerges.

When it comes to creating spaces for talent to come together and innovate, offices in dense urban locations will remain the preferred location in comparison to other physical or virtual locations.

Office space that facilitates collaboration will continue to be sought after

We believe office space that facilitates collaboration will continue to be sought after, with locations that offer easy accessibility and attractive amenities likely to perform best. Office design will continue to evolve to ensure they remain places where people want to be and work with others.

There is no doubt increased home working is likely to persist after the pandemic subsides – but that doesn’t mean the office is dead. Offices provide benefits that remote, tech-driven alternatives cannot match. There’s plenty of life in them yet.

References

  1. Shirin Ghaffary, ‘Facebook is the latest major tech company to let people work from home forever’, Vox, May 21, 2020
  2. ‘Home-working here to stay, new IoD figures suggest’, IOD, October 5, 2020
  3. ‘Banks are ditching London offices and not just because of COVID-19’, American Bank, July 6, 2020
  4. Evan DeFilippis, Stephen Michael Impink, Madison Singell, Jeffrey T. Polzer and Raffaella Sadun, ‘Collaborating during coronavirus: The impact of Covid-19 on the nature of work’, National Bureau of Economic Research, July 2020
  5. Nicholas Bloom, James Liang, John Roberts and Zhichun Jenny Ying, ‘Does working from home work? Evidence from a Chinese experiment’, Stanford University, March 3, 2015
  6. Gerald Carlino, Satyajit Chatterjee and Robert Hunt, ‘Matching and learning in cities: Urban density and the rate of invention’, Federal Reserve Bank of Philadelphia, April 2005
  7. Luís M. A. Bettencourt, José Lobo, Dirk Helbing, Christian Kühnert, and Geoffrey B. West, ‘Growth, innovation, scaling, and the pace of life in cities’, PNAS, April 24, 2007
  8. Luis Bettencourt, Jose Lobo, Deborah Strumsky, ‘Invention in the city - Increasing returns to patenting as a scaling function of metropolitan size’, Research Policy, Volume 36, 107–120, 2000
  9. Luis Bettencourt, Jose Lobo, Deborah Strumsky, ‘Invention in the city - Increasing returns to patenting as a scaling function of metropolitan size’, Research Policy, Volume 36, 107–120, 2000
  10. May Wong, ‘Big ideas are getting harder to find’, May 31, 2017
  11. Edward L. Glaeser, Vernon Henderson and Robert P. Inman, ‘The Future of Urban Research: Nonmarket Interactions’, Brookings-Wharton Papers on Urban Affairs, 2000
  12. Jason Sandvik, Richard Saouma, Nathan Seegert and Christopher Stanton, ‘Workplace knowledge flows’, The Quarterly Journal of Economics, Volume 135, Issue 3, 1635–1680, August 2020
  13. Christian Catalini, ‘Microgeography and the direction of inventive activity’, Volume 64, Issue 9, 3971-4470, September 2018
  14. Thomas Cornelissen, Christian Dustmann and Uta Schönberg, ‘Peer effects in the workplace’, American Economic Review, Volume 107, Issue 2, 425-56, February 2017
  15. Jess Gaspar and Edward L. Glaeser, ‘Information technology and the future of cities’, May 1996
  16. Edward L. Glaeser, Vernon Henderson and Robert P. Inman, ‘The future of urban research: Nonmarket interactions’, Brookings-Wharton Papers on Urban Affairs, 2000
  17. Enrico Berkes and Ruben Gaetani, ‘The geography of unconventional innovation’, Rotman School of Management Working Paper No. 3423143, July 2019
  18. Enrico Moretti, ‘The effect of high-tech clusters on the productivity of top inventors’, National Bureau of Economic Research (Working Paper), September 2019
  19. May Wong, ‘Big ideas are getting harder to find’, May 31, 2017
  20. David Atkin, Keith Chen and Anton Popov, ‘The returns to face-to-face interactions: Knowledge spillovers in Silicon Valley’, Unpublished (MIT), 2019
  21. Richard Florida and Gary Gates, ‘Technology and tolerance: Diversity and high-tech growth’, The Brookings Review, 2002, 20(1):32-33, DOI: 10.2307/20081019
  22. Edward L. Glaeser and Matthew G. Resseger, ‘The complementarity between cities and skills’, February 3, 2010
  23. Luis M.A. Bettencourt, Jose Lobo and Deborah Strumsky, ‘Invention in the city: Increasing returns to patenting as a scaling function of metropolitan size’, 2006
  24. Adam Jaffe, Manuel Trajtenberg and Rebecca Henderson, ‘Geographic localization of knowledge spillovers as evidenced by patent citations’, Quarterly Journal of Economics 108, 577–598, 1993
  25. Edward L. Glaeser, ‘Learning in cities’, Journal of Urban Economics 46, 254–277, 1999
  26. Richard Florida, ‘The rise of the creative class: And how it’s transforming work, leisure, community and everyday life’, Perseus Books Group, New York, 2002
  27. Richard Florida, ‘Cities and the creative class’, Routledge, New York, 2004
  28. Edward L. Glaeser and Joshua D. Gottlieb, ‘Urban resurgence and the consumer city’, July 1, 2006
  29. Edward L. Glaeser and Matthew G. Resseger, ‘The complementarity between cities and skills’, February 3, 2010

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