The notion that the remote work ship has already sailed is not supported by the evidence. View it as a fad, not a trend.
I received a good amount of feedback from last Saturday’s newsletter discussing remote work’s impact on office valuations. Most agreed. A few cited doubts that we’d ever return to “normal”, that the ship had sailed, and that remote work, in its present state, was here to stay.
While I understand and respect the viewpoint, I respectfully and vehemently disagree that the ship has sailed. I disagree for a number of reasons, including three which are discussed in this edition of the Emerging Real Estate Digest:
💡 Remote work teams are soft and will be defeated, 💡 Economic downturn is shifting power back to employers, and 💡 Natural selection will do the rest to remove the vestiges of excess remote work.
👇 The remote work ship sinking as it attempts to sail away.
Remote Work Teams Are Losing Market Share
Teams led and managed remotely will lose to their competitors working together in the same office, all else being equal. High office vacancies only means in-office competitors can obtain better located war rooms, at lower rents, to wage war against the established incumbents in their industry. The incumbents are infested with remote workers, and leaders who tolerate or encourage it, and therefore vulnerable.
Last week I asked, “[c]ould a football team coached through Zoom win the world cup?” Of course it would not!
A real life example is the case of Ken Griffin, CEO of Citadel, a hedge fund which became the most successful hedge fund in history, this year. He credits his firm’s incredible success to one thing, and that is his early rejection of remote work culture. He took many arrows and insults from the pundits when he banned remote work for his team at the height of the insanity in June, 2021. That’s leadership! He did what was right for his company, team and investors, when most others had their heads in the sand.
Mr. Griffin surpassed the formerly top performing hedge fund manager, Ray Dalio. Ray has been a defeatist from the beginning on the matter of remote work, and has embraced it for his teams. After many years on top, he’s now number two.
Remote Workers Will Return or Be Outsourced
The primary leverage a young American worker has against his international competitors is that he’s able to physically come into the office and form personal connections with his colleagues. When he himself removes that barrier, and primary competitive advantage, he places himself in direct competition with skilled and educated workers, around the world, willing to work for half his wage and deliver what is often an equal or better product.
Remote workers are the first to be let go when times get tough, and remote workers know this. An economic slowdown is upon us, and this presents a perfect opportunity to shift remote work functions to cheaper overseas workers.
Remote worker holdouts, still refusing to join their teams in the office, see the writing on the wall. Anxiety and dwindling options will convince most to join the team in the office again.
Natural Selection is a Powerful Force
Young employees who were working in-office following the lockdowns have been mentored, honed their interpersonal skills in an office setting, formed personal connections with their colleagues and superiors, and are better positioned to be promoted over their peers who took the easier remote working path.
The managers and executives at companies who pushed remote work will be seen as less visionary than those who spoke out when it was difficult. While we want our leaders to be kind and likeable, what we want even more is for them to be correct, reasoned and willing to take arrows for the betterment of the team when it is required. The former will likely be promoted over the less potent later, and have a disproportional influence in the company culture moving forward.
Companies who embraced in-office early are better off and winning against their competitors. See the Ken Griffin overtaking Ray Dalio example above. Their viewpoints will be expressed to a greater degree.
Final Points
Two final points on the topic.
👉 The rate of remote work in America prior to the lockdowns was 17%, or nearly 1 in 5 workers. The figure surged to 45% at its peak. When business leaders call for a return to the office, they obviously don’t mean beyond that baseline.
👉 Office occupancy will remain low in certain metro areas (e.g., NYC, San Fran, Chicago) with high taxes and poor regulations no matter how many excess remote workers’ wings are clipped. The companies in those urban areas have fled for greener pastures, often to cities in Florida and Texas where taxes are low and regulations friendly.
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