What Will the Great Return to the Office Look Like?

By Berna Barshay

Thursday, March 25, 2021

► We’re getting closer to the end of the mandatory work from home (‘WFH’) era…

With 26% of American adults having received at least one shot of the COVID-19 vaccine and more than 2 million shots going in arms daily, a return to normal life is on the horizon. For some folks, it’s already here – with restrictions lifted or loosened on leisure activities ranging from dining to gyms to movie theaters.

The few holdouts have been places where very large numbers of people congregate: stadiums and arenas, theaters and concert halls, and offices.

But on the current trajectory, we could have 90% of American adults vaccinated by mid-summer. Of course, that’s assuming they opt in (perhaps a subject for another day and probably a different newsletter!). Take a look at the progress…

Source: New York Times

With a trajectory like this, it seems reasonable to believe that we’ll be seeing at least a partial return to the office by mid- to late summer. And some companies have begun to indicate plans that are in alignment with this timeline.

Earlier this month, media giant ViacomCBS (VIAC) announced a tentative plan for at least some employees to begin returning to the office “starting after July 4 weekend, at the earliest,” also noting that the return would be “limited, optional, and completely voluntary.” Employees will be expected to wear a mask and maintain social distancing while in the office.

The same day, fellow media giant AT&T’s (T) WarnerMedia announced plans for a late summer/early fall return to the office, with CNN employees in Atlanta heading back August 1, and workers in New York, Washington, D.C., Los Angeles, and other locations just behind with, a September 1 return. It should be noted that these dates still need to conform to local health regulations.

The timeline looks similar on Wall Street, with Citigroup (C) planning to bring back employees starting in July and hoping to reach 30% of workers back in the office this summer.

JPMorgan Chase (JPM) is planning to bring in summer interns this year, and Goldman Sachs (GS) CEO David Solomon has been vocal about wanting to get employees back in office towers as well. His oft-repeated anecdote about being annoyed when he ran into a bunch of junior employees dining at a Hamptons restaurant in the middle of a workday has gone viral.

Progress is being made on the great office return… but it will still be a while until full normalcy. According to a survey out last week from the Partnership for New York City, which polled the city’s largest employers, only 45% of Manhattan’s approximately 1 million office workers are expected to be back in the office by September.

Offices reopening seems inevitable, but the big question is how many employees will be forced to go back, and how often…

When I first wrote about the potential lasting effects of the “great WFH experiment” last July, I speculated that one of the legacies of the COVID-19 era would be a transition from five days per week in the office to a “hybrid” arrangement, with a couple of days in the office and a few days at home.

To me, as a business analyst and as a worker, hybrid seems like the best of both worlds. It eliminates time wasted on commuting, lets folks have more time with their families, and makes things easier for employees who have burdens pertaining to child care, elder care, or personal health issues.

For employers, it offers the chance to reduce office space and save money on rent as well as earn employee goodwill by giving a perk that has no direct expense associated with it… especially now that it has been well-established that no productivity is lost in WFH.

Coming to the office at least part of the time addresses some of the negative aspects of remote work. Without coming physically together, company cultures can erode, collaboration is difficult, and junior employees will lose out on opportunities for training and mentorship.

Back in July, my takeaway was that hybrid offers the best of all possible worlds…

A hybrid scenario similar to the one outlined above combining a “best of both worlds” approach could be a win-win. A set-up where people come together for collaborative functions like brainstorming new initiatives, training, and team building – but don’t come in when they don’t have to – would allow workers maximum autonomy for maintaining work-life balance. In this hybrid world, employers save on rent… but without sacrificing productivity, creativity, or culture.

Eight months later, it increasingly looks like it’s going to play out this way.

Recent comments from JPMorgan Chase CEO Jamie Dimon point in this direction…

A certain amount of people work from home permanently. I think there will be a large portion who permanently work in the office. There will be some hybrids, where you spend two days or two weeks at home and two weeks in the office… It will reduce the need for commercial real estate…

Margaret Keane, CEO of consumer finance company Synchrony Financial (SYF), articulated a similar vision of the future, but with a bigger emphasis on employee preference…

COVID-19 was perhaps the worst-possible catalyst, but it forced us to make a transition that was long overdue… We can make work-at-home work for our business and have offered our employees the choice to work from home permanently or return to the office when it is safe.

This shift to hybrid has big implications across the real estate world…

Not having to be in the office every day will make workers less tethered to living in small spaces in expensive center cities… We’re already seeing the effect of this play out as one of the factors contributing the current housing boom.

Hybrid work will surely pressure demand for office space… Advertising conglomerates Interpublic (IPG) and Omnicom (OMC) were explicit as early as last summer about their plans to significantly reduce square footage. More recently, education company Pearson’s (PSON.L) CFO stated, “We will occupy a significantly smaller corporate office square footage.”

But Interpublic, Omnicom, and Pearson are all businesses with significant secular challenges… What about growth companies?

It sounds like they’ll be reducing space too… Salesforce’s (CRM) Chief People Officer Brent Hyder recently stated, “We’re not going back to the way things were… I don’t believe that we’ll keep every space in every city that we’re in, including [Salesforce’s company headquarters] San Francisco.”

In fact, it seems the tech industry in general is the one most likely to embrace remote work and offer the option of never going back to the office. Twitter (TWTR) all the way back in May said employees could be remote forever, and several companies have jumped on board with the permanent remote vision.

Here are a couple more quotes for evidence…

“Work will never go back to where we were. I can tell you right now. We will never go back… At some point there will be openings, but we have transitioned so well in most of our offices to work remotely and effectively with the tools that I think, at this point, the sense of urgency is not massively high.” – Atul Bhatnagar, CEO of networking equipment company Cambium Networks (CMBM).

“Now you can potentially be in any city. Maybe, potentially, you can be fully remote or hybrid.” – Steve Case, co-founder of America Online and founder of Revolution, a venture capital firm that invests in startups outside big tech hubs.

The Partnership for NYC poll confirmed this hybrid future, with 66% of large employers indicating they would adopt a hybrid model for work and 9% saying they wouldn’t require workers to return to the office at all.

One person who thinks he has a good grasp on how all this will shake out is Chris Herd…

He’s the founder and CEO of Firstbase, a startup focused on helping companies manage the transition to remote work.

Over the past year, Herd has spoken to more than 2,000 companies – ranging from startups to big corporations. He summarized his findings in an epic Twitter thread, which I owe great thanks to reader Andy S. for pointing out to me.

Herd believes that hybrid work will be the norm, and fully remote work will be much bigger than most people currently expect…

Source: Twitter.com/chris_herd

The reason companies will do this is that it will benefit them, both in terms of cost and in recruiting the best people…

Source: Twitter.com/chris_herd

He goes on to articulate the many benefits of WFH, including time saved by not commuting and the environmental effect of this – which he states will result in 108 million fewer tons of carbon dioxide emissions every year.

Office real estate is the big loser in Herd’s vision of the future of work, but there are also some big winners – including sellers of ergonomically beneficial home office equipment, which companies may begin to pay for, and resorts that offer facilities suitable for off-site gatherings… which will become more important than ever in promoting corporate culture in a distributed work environment.

The whole thread is fascinating, and you can read it in its entirety here.

While a hybrid or remote work world may seem like a win-win for everyone except owners of office towers and suburban office parks, there may yet be a dark side for workers…

In a distributed world, in which tools to measure output and productivity are increasingly employed, the weak zebras will quickly be outed… and personal charm and popularity will provide less of a shield from termination or compensation reduction.

Herd speculated that continued remote work would lead to “flattened orgs: middle management is in trouble… unnecessary bottlenecks which serve no tangible purpose inside async organizations.”

Taking it a step further in speculating how what appears to be a pro-worker evolution could end up backfiring, Sam Parr, founder of the news site The Hustle, tweeted yesterday…

Source: Twitter.com/theSamParr

Will hybrid work trigger a cycle of global outsourcing for white collar jobs similar to what happened in manufacturing? It’s too early to tell.

The only certainty is that work in the future won’t look like it did in the past.

Last call for our ‘TaaS 2.0’ event tonight at 8 p.m. Eastern time with my colleagues Whitney Tilson and Enrique Abeyta…

They have long believed that self-driving autonomous vehicles (“AV”) and electric vehicles (“EV”) represent one of the biggest long-term opportunities in the market today… and that literally trillions of dollars of market cap will be created in this sector in the coming decades.

Tune in tonight for this free event to hear them discuss this big growth opportunity and how to pick the best investments to participate in it. But you must reserve your spot… You can do so right here.

In the mailbag, readers react to Enrique’s guest essays on TaaS that ran earlier this week…

What plans has your employer articulated for the return to the office? What’s your preference – would you like to be back full-time, stay remote, or have a hybrid arrangement? What do you see as the primary upsides and downsides of more remote work? Do you agree with Herd and Parr that the end result of more WFH could be a lot of American jobs getting eliminated? Share your thoughts in an e-mail to [email protected].

“Enrique and Berna, I have been actively pursuing EV stocks like Lucid (via SPAC) and an ETF (CARZ), Porsche (PAH3 GY), Volkswagen (VOW3 GY), and charging infrastructure via a SPAC (CLII) and Volkswagen who owns charging infrastructure in addition to battery and other means. The ETF (XLC) has 24% of their holdings in GOOG, which should provide some ownership in Waymo. I am looking forward to the TaaS 2 discussion.” – Mitch F.

“Which of the manufacturers is the best investment according to you: Tesla, GM, Toyota or Volkswagen?” – Ursula C.

Berna comment: Ursula, if you tune in to the free webinar tonight, you’ll hear Whitney give away his favorite TaaS play! Again, the link to sign up is here.

“It would appear that there is a selloff in the technology sector. It would appear to be a bad time to invest in company stocks that stand to benefit from the EV and AV growth. What are your thoughts?” – Jack M.

Berna comment: Jack, you’re right that we’ve seen a sector rotation in 2021 out of technology and other high-growth, high-multiple stocks and into traditionally cyclical sectors like energy, industrials, and financials, as well as into value stocks in general. This has been a recent drag on EV and AV shares, and it’s possible such market shifts could continue to be a short-term headwind.

But it’s important to note that we aren’t playing these TaaS names to make a 25%, 50%, or even 100% return in a year or two… all of which would be respectable. We think this sector will create several long-term moonshots, which could go up 5 times or 10 times over the coming decade.

The fact that AV and EV stocks traded down recently is an opportunity, not a bad sign… After all, you want to buy low, sell high!

I don’t know how long this tech sell-off will continue. We could be at the end of it, or maybe some of these names could get clipped another 30% or more from here. But if you’re a long-term investor, you shouldn’t care about setbacks and drawdowns… The long-term opportunity is unchanged. The only thing that has changed is that better prices are available in the market today than were there were a few weeks ago.

“I love my all-electric Nissan Leaf. (It gets about 250 miles per full charge around town, but only about 210 at highway speeds.)

“But… I bought the car for its ease of maintenance and smooth quiet ride, not the supposed environmental advantages.

“Here is my bumper sticker: ALL ELECTRIC VEHICLE (FUELED BY COAL)” – William H.


Berna Barshay
March 25, 2021

Whitney Tilson
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About Whitney Tilson

Prior to creating Empire Financial Research, Whitney Tilson founded and ran Kase Capital Management, which managed three value-oriented hedge funds and two mutual funds. Starting out of his bedroom with only $1 million, Tilson grew assets under management to nearly $200 million.

Tilson graduated magna cum laude from Harvard College with a bachelor’s degree in government in 1989. After college, he helped Wendy Kopp launch Teach for America and then spent two years as a consultant at the Boston Consulting Group. He earned his MBA from Harvard Business School in 1994, where he graduated in the top 5% of his class and was named a Baker Scholar.

Click here for the full bio.