The office real estate dilemma

Hybrid isn't where it should be -- and real estate is part of the problem

In prior posts I've explored in detail why where we work matters, and why it matters a LOT.

So the question becomes:

IF 'where' matters, AND COVID has unlocked a new reality where we have the practical ability, for the first time, to regularly CHOOSE where we work….

THEN, why are we three full years into the pandemic -- with schools, restaurants, shops and planes 100% back -- and work-from-home still dominates?

Well, part of it is that figuring out hybrid isn't easy. As I shared a few weeks ago, you first need to figure out what to do where, and then you have to coordinate the 'where' across a group of people with disparate needs.  Perfect is the enemy of the good here, but even getting something is hard for most companies.

But even once you've made your plan on who should work where / when, putting it into practice is another story. Part of this is organizational change management, but an even more baseline need is simply finding space that suits your plan.

And that is where even the most innovative, first-principles-thinking hybrid companies run into trouble. Accessing office space that meets hybrid needs is practically impossible.

How to find an office

The first thing you will likely do is engage a commercial real estate broker, someone paid to manage your space search and handle the lease negotiation. They'll listen attentively (if they're good) and start to give you a lay of the land.

Within a few days you will discover that the physical workspace reality you were hoping for is farther out of reach than you had envisioned.

First, finding that space you want is going to take a lot longer than you expected and require a multitude of stakeholders -- in addition to your broker, you may find yourself needing a designer and perhaps architect to lay out the space improvements required, an attorney to review your lease, a moving company to get you in there. The whole thing might take 6 months or more, and you'll need someone on your team to dedicate at least a few hours each week to this, not to mention all the time you'll need to spend touring sites.

A ~75-person design firm shared with me last year:

"We started our search in mid 2020 -- we are a creative firm and wanted a space that would support that. We did visioning exercises and wanted to have a collaborative approach with the whole team to finding something that would make coming into the office worthwhile… but we kept seeing the same types of spaces and none of them really met what we were looking for. We reviewed more than 200 buildings. We toured probably 75 properties. It took more than a year. We were going out every week looking at 5, 6, 7 buildings."

You'll find a place that seems decent, only to be smacked in the face by a truth so obvious you wondered why you didn't think of it earlier: nobody is going to rent you their office for 3 days a week. It's 7 or bust, which means that while your lease drains your cash indiscriminately, you have to sit with knowing that what you're getting for it sits empty and unused 60-70% of the time.

A ~80 person NYC startup told me:

"We surveyed our employees and everyone wanted to come in some time.  But few would come in regularly. So we wanted a space in NYC that would occasionally hold 65 people, but rarely more than 10. Spending $40k/month on that made no sense to us."

And then, when you have put in 6 months of fruitless labor and finally accepted the reality of what this new shiny office is going to cost you, the real hammer drops. Your broker tells you that the only way the landlord will take you given the space improvements you want is if you sign a 5 year lease. You have no idea where your company will be in 5 years or what working norms will make the most sense. The thought of committing now feels completely impractical.

A COO of a ~100 person Bay Area startup shared:

"For months I had daily calls with our broker -- we'd find something that seemed like a fit, and then he'd tell us we'd need to sign a 5 year lease or it wouldn't be worth it. We have no idea where we'll be in 5 years."

So you have some a moment of reconsideration: is the office really worth it? You tell yourself yes, you need something, and start to think about alternatives. How about coworking - what if I just got a small month-to-month space at the local WeWork? How about an Airbnb rental once a month to get the whole team together in a trendy warehouse? Or, I think I remember my friend's company having half a floor they don't use… could I just sublet that?

You find for each of these, for reasons we'll explore in future posts, they don't quite cut it either.

And alas, you are back to square one: the status quo, the default: work from home.

Real estate is one of the major frictions standing between the status quo and ideal. More to come on this one.