The US unemployment rate is currently at 3.6%, nearing a 50-year low.  If you were born before 1985 you may recall a time when landing a job was a feat unto itself.  From there, you probably remember working in an office at least 5 days per week, staying late to get ahead, and working your way up the corporate ladder. In a matter of two years, that corporate office culture now seems to be utterly archaic and out of touch. Driven by an imbalance in the labor market, the employee has far more leverage over their working environment than the employer.
 
Many executives we hear from quietly want their employees to return to the office for the benefits of productivity, innovation & culture. Nevertheless, most are treading carefully knowing that any missteps in pushing back on employee demands could increase attrition and affect retention in a labor market that is still unforgiving but beginning to show signs of weakness.   

Although we are experiencing increases in office leasing activity and most companies have initiated a return-to-work policy involving hybrid occupancy strategies, the occupancy rates of office buildings across major metro markets in the US are still much lower than we anticipated at this point.  What started out as a health and safety concern for employees has quickly pivoted to a whole host of reasons employees are pushing to work from home such as crime, fuel costs, traffic congestion, and child-care.

This is why many major employers have recently expressed their concerns to local governments and other downtown development organizations alike.  “The divide has created a sense of urgency among politicians and business leaders in these cities, where the stakes are especially high because office workers are the engine of local economics and fuel small businesses” (WSJ, “Big Cities Can’t Get Workers Back to the Office”). These are issues that local governments are acutely aware of as they are struggling with their own return to office policies, knowing that a return is better for their city while simultaneously not wanting to risk the loss of current staff. 

With all the variables in the economy, employers are focused on strong teamwork and efficiencies, which they find occurs better in the office. Our thesis is that a full return to the office will only revert to pre-pandemic levels when the employer gains its position of leverage.  How does this occur?  We believe that the economy is the impetus for change on the office occupancy front and we are starting to see that transpire as we experience inflationary and recession concerns. 

As of June, the CPI rose 9.1% year-over-year, which is the largest gain since 1981. Persistently rising interest rates are putting pressure on corporate borrowing, in addition to labor costs. As inflation continues to rise, we see consumer spending and hiring slow, along with an increase in layoffs.  Whether we are currently in or headed for a recession remains to be seen, but the markets are generally pointing towards a shift in the balance of employee/employer relations. US-based companies announced plans to cut 24,286 jobs from their payrolls in April of 2022, the most since May last year. 

You may recall Elon Musk’s recent memo to employees rebuking the work from home movement stating that “Remote work is no longer acceptable. Anyone who wishes to do remote work must be in the office for a minimum (and I mean *minimum*) of 40 hours per week or depart Tesla,” and finally capping off his sentiment with “They should pretend to work somewhere else” (Forbes).  Not surprisingly, Elon followed up the next month announcing a 10% reduction in Tesla’s salaried workforce.  So, while companies may still be reluctant to take a hard-line approach to their return to office policies as they compete with employers around the world for talent, the labor market is simultaneously shifting below us and the impacts of that fact should not be discounted.

There is no doubt that there are a number of near-term hurdles to overcome for many employers, but one thing we know for certain is that the office is not dead. It's transforming, adapting, and being reimagined - all with the economy in focus.