Nathan Field says with hybrid work here to stay, regardless of whether it’s good for productivity or not, the risks for CBD office property investment are going to persist

One of the most visible signs that the urban workplace has permanently changed is the prevalence of suited men wearing sneakers in New York. The trend was already bubbling under the surface before the pandemic, but the sneakers were mostly brown or black and appeared to mimic dress shoes. Today, anything goes – work sneakers can be slim white trainers or brightly coloured running shoes.

Suits are optional, too. Khakis and polo shirts used to be reserved for casual Fridays, now they are commonplace any day of the week. It’s a far cry from the well-cut suits and polished wingtips that were traditionally associated with the financial industry. Gordon Gecko’s Wall Street this is not.

Employers appear to be grateful that workers are turning up to the office at all. Of all the pandemic-era habits people adopted, working from home has been one of the most difficult to shake. Enforcing an office dress code would be just another reason for workers to skip the commute.

There is a large gulf between what executives want and what employees will give them when it comes to the future of work. A recent Bankrate survey in the US found that 68% of full-time workers preferred a hybrid work schedule, working from home at least one day a week. Corporate executives, on the other hand, are keen to get people back where they can see them.

Goldman Sachs wants its employees in five days a week. Amazon has been having a running battle with remote workers who want to stay remote. Alphabet is making attendance a factor in employee performance reviews.

In fact, according to a survey by Resume Builder, 90% of US companies plan to implement a return-to-office policy by the end of 2024.

The arguments put forward by executives are strikingly similar. Collaboration and spontaneous idea generation can only happen in the office, workplace culture can only be fostered when surrounded by colleagues, and productivity cannot be maintained at a high level at home.

There seems to be a lack of trust between employer and employee. A recent Microsoft study found that 85% of leaders struggled to have confidence that hybrid workers were being productive. Yet the evidence is more mixed on the subject. There have been studies showing remote workers clock up more hours per week than in-office workers (largely due to saved commute time), and others that claim remote workers are 10-20% less productive than fully in-office employees.

The only conclusion to draw is that hybrid work is here to stay, regardless of whether it’s good for productivity or not. CEOs may pine for the days of calling spontaneous meetings with department heads and seeing people pile out of crammed elevators, but workers feel differently. Knowledge employees strongly favour a flexible work schedule, and if companies want the best talent, they’re going to have to be flexible, too.

The momentum behind “return to the office” has certainly stalled. According to Kastle Systems, during the first week of September, the average occupancy rate in the top 10 cities in the US was 47.3% of pre-pandemic levels, compared to 44% a year earlier.

Investment-wise, this makes CBD office property a risky proposition. A fair amount of pain has already been taken, but the low vacancy rates in the sector look set to persist for a while longer.

Hybrid work, and the ongoing casualisation of the workplace, are more future focused trends. With sneakers already acceptable, we see opportunities for leisure brands like Nike and Lululemon to capitalise on the blurred line between home and the office. Lululemon’s ABC pant, made of stretchy polyester and marketed as suitable for all-day comfort, has already proven popular with Wall Street guys.

It might not look as slick as the Wall Street of old, it might not even look good, but in an environment where employees are redefining the rules of the workplace, personal comfort comes above everything else.

*Nathan Field manages the Global Thematic strategy at KiwiSaver and Wealth provider, Generate. No part of this is intended as financial advice; it is intended as general information only. Past performance is not indicative of future performance. To see a copy of Generate’s Financial Advice or Product Disclosure Statements visit generatewelath.co.nz/disclosures. The issuer of the scheme is Generate Investment Management Limited.