How Much Office Space Do You Really Need?
And by the way, how much
office space are you on the hook for? As Salesforce has demonstrated, the
calibrations are not all that straightforward. But understand this: people who
are unwilling to show up without “carrots” might not be worth your while.
BY HOWARD
TULLMAN, GENERAL MANAGING PARTNER, G2T3V AND CHICAGO HIGH TECH
INVESTORS@HOWARDTULLMAN1
The most prevalent
question I hear asked of any of the dozens of entrepreneurs in our G2 portfolio
is whether they're going to need more or less operating space in the future.
And the most repeated answer from the crowd is a rapid "Yes." Confusing
no doubt, but honest, because no one really has a clue or a crystal ball about
the state of real estate in the post-pandemic era.
It's not only the
current, persistent and pervasive desire of white-collar knowledge workers to
work from home that's driving the changes; there are emergent beliefs and
behavioral trends that have been building for decades, which all suggest that
we're looking at permanent and systemic changes in the perceptions,
expectations, and demand for traditional office space. Today, too much or too little space can be both
a blessing and a curse.
If you and your team
aren't already struggling with this exact concern, you're either asleep at the
switch, sadly locked into a costly long-term lease (with zero prospects
of getting any subletting relief) or your company is stuck in a rut - not going
or growing - and you're peddling furiously but headed nowhere fast. Wherever
you are on this spectrum right now, treading water isn't a viable option.
Things aren't going to get better by themselves.
Real estate is a growing
problem across the business spectrum. For example, last week in Chicago,
Salesforce, which many years ago (pre-Covid) agreed to anchor a new 60-story
office building in the city's central business district, finally rolled out its
own newly-designed facilities within the building. And the city
collectively -- including our clueless mayor whose "remarks" at the
event were typically and literally indecipherable -- breathed a sigh of relief.
Earlier in 2023, Salesforce laid off some 8,000 workers nationwide, which was
about 10% of the company, so there had been plenty of cause for concern as to
its plans for this location. In any case, after all the cheering died down, the
actual facts and figures were a lot more sobering and instructive.
First and foremost,
instead of occupying 500,000 sq. ft. of space, Salesforce built out about
350,000 sq. ft. and immediately dumped the balance into Chicago's already
cluttered and overcrowded sublease market. It's hard to find any major tenant
in the city who isn't taking similar steps to try to offload hunks of
underutilized or empty space. Many years ago, these kinds of short-term
opportunities were ripe for startups to grab, but these days there aren't many
entrepreneurs with excess cash and a willingness to take over someone else's
occupancy problems. And, make no mistake, sitting your people in the detritus
of the former occupant's failure is a culture killer for anyone trying to build
a new business. Don't try to do cheaply what you shouldn't do at all.
Second, it's fairly
obvious that Salesforce is kidding themselves and the city in terms of actual
use and occupancy. They had originally said they'd have 1,000 employees in
Chicago. The new story is that they have "assigned" 2,200 workers to
the new location (whatever that means) and they estimate that about 800
employees are visiting the offices on any given day. Here again, if you're
trying to realistically plan for your people's attendance and use of your space
going forward, the very last thing you want to do is to overshoot the mark or
kid yourself in terms of who's coming back any time soon. The five-day work
week is gone forever, and you can safely assume that 30% to 50% of your workforce will be remote for
the foreseeable future.
Third, and maybe to
attempt to justify their decision not to abandon even more of their leased
space, or as just a further flight of fantasy, they dedicated two entire floors
to be used as a "workplace retreat" (undoubtedly perfect for pickleball
courts) which will also be made available to outside non-profit organizations
on nights and weekends for their events. There'll be no burning of the midnight
oil for Salesforce employees on these floors. This wasteful wonderland is in
addition to a variety of locations spread throughout the remainder of the total
facility for small gatherings, nursing stations, phone nooks, and meditation
rooms. All of it in furtherance of some warped vision of the workplace of the
future with the intention to induce the return of work-from-home warriors.
Given how desperate and
already passé most of these DEI designer-driven gestures look, it's no wonder
the ribbon-cutting ceremonies included a number of different clergy as
well as the usual native land acknowledgment garbage.
But fair enough, when you consider that they will need a number of miracles to
make this place anything more than a PR and CYA display by a company with more
money than sense.
If you find yourself
drowning in similar requests for special accommodations, exercise rooms, ping
pong and pool tables, and perhaps a pickleball court or two, bite the bullet,
stand your ground, and remind your team that now's the time to focus on form and
function rather than frivolity and fruitless, feel-good gestures that aren't
going to make a difference to the workforce or the bottom line. If you have to
beg or bribe people to come back to work for you, they're the wrong people for your
business.