FILE PHOTO: Commuters riding bikes and scooters make their way in the Quartier Latin in Paris in France, June 3, 2020. REUTERS/Charles Platiau/File Photo
May 26, 2021
By John Kemp
LONDON (Reuters) – Hybrid working is often presented as a flexible compromise that secures the best advantages of office-based and remote work, but the reality is likely to be the worst of both worlds.
Commercial real estate owners, with large investments in central city office buildings, as well as their bankers and agents, have been the strongest promoters of the blended work model.
For them, the advantages are obvious, since hybrid work would minimise the reduction in central office utilisation after the COVID-19 pandemic.
For other employers and employees, as well as public transport operators and many service businesses, hybrid work is likely to prove expensive and inefficient.
Employers’ expenditure on central office space will remain high while employees need larger and more expensive accommodation to work from home, much of which is only used some of the time.
Travel costs and commuting times will remain high, borne by either employers (through higher wages and lower productivity) or employees (in reduced discretionary spending and longer hours).
Public transit operators will face a cut in the number of journeys, capacity utilisation and fare income, which will be challenging financially given their relatively high share of fixed costs.
Centrally located service businesses depending on office workers will lose a share of their income, while suburban and non-urban businesses will see only modest increases, leaving both under-utilising space.
As a result, hybrid work will leave most offices, retail outlets, homes and transport systems under-utilised, leaving most firms and workers worse off than in fully office-based or fully remote models.
For much the same reason, hybrid working systems are likely to be less energy efficient, consuming more energy for any given level of economic output.
Most large employers are preparing to order their employees back to the office for half of the working week, or more, once the epidemic has been brought under control.
The main justification is that only office-based work can secure effective collaboration, creativity and teamwork, as well as the transmission of ideas, knowledge and culture throughout the organisation.
For office proponents, reducing the amount of time working in central offices reduces organisational cohesion and makes effective management supervision and control harder.
But even relatively small amounts of remote working will sharply limit the alleged benefits of face-to-face collaboration and networking (https://tmsnrt.rs/2SvaXPb).
If employees spend on average three days each week in the office, still a relatively high share, the amount of face-to-face contact time between any two workers falls to just 36%.
If employees spend two days a week in the office, average contact time between any two workers falls to just 16%, assuming attendance at the office is randomly distributed through the week.
This is the reason why many employers are talking about the need for a relatively high number of days each week to be spent in the office, generally three or more.
To boost contact time between employees in the same team or in closely related functions, many employers are promoting rota systems, requiring employees to attend the office on specified days.
But increasing contact time between same-team workers can only be achieved by reducing it even more between employees in different teams and more distantly related functions.
In a hybrid model, employers will also need to schedule office attendance throughout the week to maximise occupancy, minimise space requirements and minimise office costs.
If employees all try to work in the office on Mondays, and remotely on Fridays, employers would have to provide seating for the entire workforce, erasing any savings.
Most employers are therefore focused on a hybrid system that requires relatively strict scheduling that will leave relatively little flexibility for employees.
If businesses can use strict scheduling to maximise office occupancy and collaboration while minimising real estate costs, employees have far fewer options.
Even relatively low amounts of remote work will increase the need for more accommodation to provide space for working at home, which is already adding to housing costs.
Moreover, the work-from-home space will be only partly utilised because employees will be required to attend the office three or more days per week.
Continued office attendance for half the week or more also means that commuting times and costs remain relatively high.
In fact, the daily commuting cost is likely to increase, since transit operators will have to boost per-mile and per-day fares to recoup their fixed costs from a smaller number of journeys.
But frequent office attendance will limit options for relocating residences further from central cities to suburban and non-urban areas to reduce accommodation costs or pay for larger homes.
Bottom line: employees will still have to commute frequently, likely with increased fares, and need bigger homes, but find it hard to move further away because of the continued ties to the office.
Public transportation systems rely on high levels of ridership and capacity utilisation to cover their high fixed costs and keep fares affordable, as well as making them very energy efficient.
Extreme overcrowding on mass transit systems during the morning and evening rush hour is a long-standing feature not a bug.
Hybrid working implies fewer journeys and less fare income but overhead costs of running and maintaining the system will not fall much if at all.
For transit operators, the only way to make up the income shortfall is to raise fares, seek increased government subsidies, or shrink the network.
Like employers, transit operators try to utilise their capacity as efficiently as possible, which ideally means that commutes are spread evenly throughout the week.
If employees all try to commute on Monday and work remotely on Friday, the system will remain overcrowded at the start of the week, under-used at the end, and have lower revenues overall.
Transit operators will therefore need to find ways to encourage employers and employees to schedule their office attendance as evenly as possible throughout the week, probably through differential fares.
Retailers, restaurants and other service businesses located in city centres depending on commuters would be hit hard by a shift to remote work but might not benefit much from a hybrid model.
In a hybrid model, the number of customers at city centre businesses is still likely to decline, but many costs for rent, property taxes, utilities and even to some extent workers, are fixed or at least sticky.
At the same time, suburban and non-urban service businesses find their potential increased income limited by the need for continued office attendance, while many costs are fixed.
City centre and suburban/non-urban businesses will end up splitting the potential customer base while both groups have under-occupied buildings and reduced profitability.
Hybrid working will force workers to shoulder some of the heating, lighting and power costs currently paid by their employers, likely without a corresponding adjustment in wages and salaries.
Hybrid working is likely to increase the total amount of occupied office and residential space, pushing up energy consumption overall.
Moreover, fully occupied central offices and transit systems usually make very efficient use of energy, while residential properties are often far less efficient.
The transit system’s energy consumption is likely to fall more slowly, if at all, than the number of passengers and journeys.
And for most service sector businesses, energy consumption and costs are semi-fixed, so under-utilisation of both city centre and suburban buildings will push unit energy use and costs higher.
The result is that hybrid work could make almost everyone, from employers and employees to transit operators and service businesses, worse off than either fully office-based or fully remote working.
(Editing by Barbara Lewis)