Part 1 in our Hybrid Working thought leadership series

Introduction

Globally and in Australia, office markets are reeling as CBD vacancy hits record highs. Meta stumping up AU$238m to exit their London lease (see here) is just the latest high profile office casualty of hybrid working. Whether we are in the office end times or experiencing a passing working from home (WFH) fad divides opinion, which is usually determined by the age, living arrangements and vested interests in the office market of either side.

To date most office prophecies have been based on personal perspectives, experiences and hopes rather than facts. In order to provide a more balanced understanding of what is happening in reality and what the future for offices is likely to be using objective facts and evidence, we have crunched an array of non-real estate data sourced globally and within Australia on the factors which influence the home versus office working balance. Our findings offer genuine insight to the murky and opinionated public discourse.

In three parts, we explore:

Part 1: Global hybrid working trends and drivers – exploring how regional and country level working preferences vary and primary reasons why.

Part 2: Australian hybrid working trends and drivers – illuminating the influencing factors of hybrid working down under which reveals a unique local twist on the global pattern. Based on these findings we unveil our WFH vulnerability index tool to assess office market resilience and risk at a city and sub-market level.

Part 3: City impacts and adaption strategies – here we offer advice for city governments, owners and other stakeholders on proactively responding to the transformational changes of hybrid working based on the insight contained within Parts 1 and 2.

If you think the hybrid working trend is nearly done, buckle up. Its implications are only just starting to manifest and they will be seismic. Our series will educate you on the factors which determine hybrid working impacts in any city or location, its implications and suitable ways for local government, city planners, asset owners, operators and occupiers to lean into the structural change to capture the best outcomes.

WFH trends differ markedly by country and region (Figure 1). Workers in Asia-Pacific (APAC) have shown the greatest propensity to return to the office, with re-entry just 16% lower than pre-pandemic. Beijing, Seoul and Shanghai have completely recovered. Office re-entry in Europe averages 27% lower than it was before the pandemic, ranging from -35% in London to -15% in Amsterdam and Paris. The Americas have the lowest office re-entry globally, which remains only half of the pre-pandemic level. San Francisco (-58%), Los Angeles (-55%), Washington D.C. and New York (-54%) have the lowest re-entry rates and are amongst the world’s largest office markets too.

These sizeable differences across cites, countries and regions imply that there are different determinants behind office workers either WFH or the office.

Figure 1: Office Occupancy versus Pre-pandemic Level – Q2 23, Global

Trend drivers: Varied & diverse

Our research on WFH propensities in different markets has identified six key factors which determine how likely workers are to visit the office. These are the commute, living arrangements, cultural norms, pandemic experience, employment profile and office appeal.

The Commute: Important in some countries

Multiple employee surveys indicate that the biggest impediment to being office-based is the time and monetary cost of the commute. For example:

• 79% of workers in a 2023 survey by Hubble, a flex space platform, named the lack of commute as one of the best things about WFH (Hubble, 2023).
• 72% of knowledge workers in a global survey by Executive Networks, an HR networking company, indicated that companies are not making it worthwhile to commute to the office (Executive Networks, 2023).
• 75% of global workers surveyed by CBRE want a commute of less than 30 minutes. Commute time is the second most important job assessment factor after remuneration and a shorter commute is the primary factor that would encourage them to work from the office more frequently (CBRE, 2022).

Three aspects of the commute contribute to worker dissatisfaction – time, cost and to a lesser extent, mode. Analysis of global commuting patterns (Figure 2) indicates that Europeans have the shortest average commutes, with 65% travelling for less than 30 minutes compared to 63% in North America
and 48% in Asia. There is significant variation across countries, with the largest share of workers with a commute of less than 30 minutes being in the USA (69%) and the lowest in Singapore (37%).

Considering average commute times against desired commute time, workers in all countries would like a shorter commute (Figure 3). Nearly 79% of European workers would like a commute of less than 30 minutes, as would 77% of North American workers and 69% of Asian workers.

The largest proportional share of workers dissatisfied with their commute are based in Singapore (32% desire a sub-30 minute commute but do not currently have one) and France (19% want but do not have a sub-30 minute commute). That is despite French workers having one the highest existing share of workers with a short commute globally. It seems that tolerance for longer commutes varies quite markedly across different countries and is not universal.

Figure 2: Average Commute Times to Work, Select Countries

Considering these findings against office re-entry rates (Figure 1), it is not a foregone conclusion that longer commutes mean more WFH. Asian countries have the longest average commutes but the highest office re-entry rate whereas the USA has the lowest office re-entry rate but has the largest global proportion of workers within a short commute.

Furthermore, dissatisfaction with commute length is not necessarily an impediment to office attendance. Singaporean workers have a longer average commute than Japanese workers who have a longer average commute than Australian workers but office re-entry rates are highest in the major markets in Singapore followed by Japan and Australia.

Worker surveys indicate that public transport is the preferred commuting mode if walking is not possible. The CBRE survey indicates that 71% of workers globally state that accessibility by public transport is the most desirable factor in encouraging more frequent office visits (CBRE Research, 2022). This rises 79% in Asia. It is likely that this reflects the greater reliability of public transport relative to the private car as well as the ability to multi-task whilst commuting. The cost of the commute is also an influencing factor.

Figure 4 ranks major global office markets for their public transport mobility using a broad range of factors including cost (affordability), availability and convenience. This data does correlate more closely with office re-entry rates on a regional basis but the correlation is far from perfect. Singapore and Japan have higher overall urban transport mobility rankings together with long average commutes and high office re-entry rates. This may imply that worker tolerance for longer commutes is greater if they can be undertaken by public transport rather than private car.

Figure 3: Sub 30-minute Commute – Current versus Desired Proportion of Office Workers, Select Countries

Considering these findings against office re-entry rates, it is not a foregone conclusion that longer commutes mean more WFH. Asian countries have the longest average commutes but the highest office re-entry rate whereas the USA has the lowest office re-entry rate but has the largest global proportion of workers within a short commute.

In conclusion, commute length, cost and mode are important determinants of WFH propensities, but dissatisfaction with their commute does not necessary impede the frequency of office visits.

This suggests that other factors are important. It is also likely that commuting factors will weight more heavily on the desirability of different office markets within a country and within a city, rather than at a national country level. That is, a city with shorter average commutes available via public transport (e.g. New York) is likely to have higher office re-entry rates than a comparable city in the same country with longer car-based commutes (e.g. San Francisco).

Figure 4: Overarching Urban Transport Mobility Ranking, Select Global Cities‍

Cities with the lowest office re-entry rates in their respective regions like Australia and the USA have the largest average dwelling size; countries with the smallest dwellings such as Hong Kong and China have the highest office re-entry rates.

Living Arrangements: Small dwellings do not encourage WFH

WFH may be less appealing for workers who reside in shared accommodation, smaller dwellings which lack space or older properties without modern amenities like air conditioning. Globally and within Asia, dwelling size does correlate very closely with office re-entry rates (Figure 5).

Cities with the lowest office re-entry rates in their respective regions like Australia and the USA have the largest average dwelling size; countries with the smallest dwellings such as Hong Kong and China have the highest office re-entry rates.

Europe is an outlier based on this data. London has the lowest office re-entry rate in Europe and the smallest average dwelling size; Netherlands and France have some of the largest dwelling sizes and the largest office re-entry rates. This may reflect data compatibility. Office workers in London have longer average commutes relative to other major European office markets as many live in larger dwellings in suburban locations. Therefore national-level data is not necessarily indicative of living arrangements within individual cities. Nevertheless, the data still suggests living arrangements are an important influencer on WFH propensity, especially in Asia.

Figure 5: Average Dwelling Size (sqm), Select Countries

Cultural Norms

Cultural norms are challenging to quantify with hard data but are likely to play a significant role in the propensity to WFH at a national level. The existence of different cultural expectations could in large part explain the unique trends evident in Asian cities, which combine long commutes with high office re-entry rates contrary to expectations based on worker preferences.

Academic research suggests that workplace cultural norms in some Asian countries are dominated by a ‘high power distance’ managerial style which emphasises high worker supervision and punishment (Himawan KK et. al, 2022; Hofstede, 2001). In countries which rely on supervisory power based on visible cues and conservative forms of supervision, virtual communication is less effective than face-to- face meetings (Raghuram & Fang, 2014). A reduced office presence damages management authority and limits the ability of employees to gain recognition and career advancement. Thus WFH is viewed as an existential threat to managers, business operations and workers.

Such societies are characterised by high levels of masculinity and outward displays of status, success and prestige. This requires physical presence. Prestige is linked to job satisfaction, so WFH may be perceived as a threat to job satisfaction in heavily masculine cultures (Carmeli & Freund, 2002).

Other cultural norms which may encourage a greater office attendance are societies with high collectivism scores in which individuals desire a sense of belonging (Baumeister & Leary, 1995; Donnelly & Proctor- Thomson, 2015). WFH may stimulate greater feelings of social isolation and disconnectedness in collectivist societies compared to more individualist societies such as those in the west.

Other cultural norms that encourage more office attendance in Asia include relative WFH inexperience and low indulgence levels. Some Asian countries had not previously experimented with WFH prior to the pandemic. Societies which favour stability and tradition avoid uncertainty of the type associated with a radically new way of working (Heuvel et al., 2010; Hofstede, 2001). Societies with low levels of indulgence may be susceptible to guilt if given the flexibility for the self-care, autonomy and independence provided by WFH (Elbing et al., 1975).

The main cultural norms which influence WFH preferences are summarised in Table 1.

Table 1: Cultural Profile of Many Asian Societies and the Possible Barriers to WFH

Given the high office re-entry rates in many Asian countries relative to other Western countries, cultural factors are likely to play a major role in WFH propensity. Even within Western countries though, cultural differences impact WFH. Research from Stanford University has found that employees in Europe are more concerned about missing social contact and relationships with co-workers than Americans, which corresponds with higher European office re-entry trends.

Pandemic Experience: Better handling = lower WFH

It has been speculated that the experience of countries during the pandemic altered the extent to which WFH trends endured afterwards. This is difficult to accurately corroborate through data. Examination of excess morality during the pandemic shows little correlation between WFH propensity afterwards, but there does appear to be some relationship between those countries that had looser or shorter lockdowns and those with lower WFH propensities. This suggests that longer lockdowns entrenched WFH to a greater extent. Workers may have invested more in technology and design to make WFH more amenable, and they have taken more radical steps afterwards to insulate themselves from future lockdowns by, for example, moving to larger homes or remoter areas which discourages frequent office attendances. WFH habits themselves may have been more habituated and thus harder to break from afterwards, where companies transitioned to remote meetings and business processes.

Asian countries such as Korea and Singapore are perceived to have dealt with COVID-19 more effectively than the USA, the UK and France (Chen, 2021). They benefited from their previous experience controlling SARS and adopted strict containment measures which led to tighter border control, clear guidance, higher adherence, and short targeted lockdowns. By contrast, western countries used mitigation policies, mixed messaging, frequently changing policies and blanket lockdowns which were less effective at halting the spread of the virus quickly. The UK was one of the slowest European countries to implement lockdowns and spent relatively more days in lockdown. Today, London has the lowest office re- entry rates of any major European office market.

There may be stronger evidence for the influence of the pandemic experience within federal countries in which States could adopt different policies. California, Washington DC and New York imposed some of the most aggressive and longest lockdown and control measures in the USA and now their major office markets have the lowest office re-entry rates (World Population Review, 2023). Texas adopted a less aggressive approach and today Dallas and Houston have the most workers back in the office of the major markets considered previously (Figure 1). Texas has also gained from post-pandemic inward migration which in part reflects its looser pandemic response. This migration may self-select workers with a greater need for more social contact, however its relative house affordability, availability of larger properties, lower taxes and strong employment prospects are also highly attractive to immigrants (The Economist, 2023a).

It is challenging to substantiate the impact of the pandemic experience on WFH propensity, but we consider it highly likely to be a strong influencing factor and one very relevant to Australia.

Examination of excess morality during the pandemic shows little correlation between WFH propensity afterwards, but there does appear to be some relationship between those countries that had looser or shorter lockdowns and those with lower WFH propensities. This suggests that longer lockdowns entrenched WFH to a greater extent.

Employment Profiles: Roles matter

In the hybrid-working world, employees are empowered to choose where to work based on where they will be most effective. The home environment is better suited to certain tasks such as self-directed learning, coding, reporting writing, data review and analysis (Figure 6). Other tasks which involve face-to-face contact, selling, network building, verbal communication and creativity are better suited to the office. These tasks can be equated to industries to identify those prone to WFH based on the nature of their dominant roles.

IT, communications and knowledge roles that rely heavily on computer-based work tended to WFH more frequently prior to the pandemic than other office-based roles, and they are more likely to WFH more afterwards too (AEW, 2021). Many roles in finance, which require data processing and analysis, and law which require reviewing contracts, paperwork or verifying information, do not benefit from a physical office presence (Make it Work, 2022). Studies on American working patterns post-pandemic have indicated that employees in IT, finance and professional services WFH one full day per week more than government and medical employees (Bloomberg, 2023).

The employment profile of a city or country is likely to impact the vulnerability of its office stock to WFH. This aligns with country-level data from the USA where the tech-heavy San Francisco market, the tech/finance/production dominated LA market, and finance-dominated New York have the lowest rates of office re-entry. Houston, Dallas and Chicago have more diverse employment profiles and higher office re-entry. However, it is expected that employment profiles impact more locally at the micro-market level rather than the city level, with certain sub-markets that are heavily exposed to a single industry like tech or finance at highest risk of WFH.

Figure 6: Time Spent WFH Without Productivity Loss, %

The employment profile of a city or country is likely to impact the vulnerability of its office stock to WFH. This aligns with country-level data from the US where the tech-heavy San Francisco market, the tech/finance/ production dominated LA market, and finance-dominated New York have the lowest rates of office re-entry. Houston, Dallas and Chicago have more diverse employment profiles and higher office re-entry.

Office Appeal: Location and quality

With hybrid-working being the default working practice in most countries, working from an office is now a choice. As a result offices need to work harder to attract employees, or “earn the commute”. Offices that are amenitised, sustainable and tech-enabled are most appealing. This requires companies to occupy either a modern or a recently refurbished building. The age profile of offices varies significantly across the major global markets and is likely to attract or deter workers (Figure 7).

Markets in the USA like New York and San Francisco have the lowest proportion of modern stock built since 2010, closely followed by London. Nearly two-thirds of the office stock in New York and half of London’s stock was built prior to 1970. Tokyo has by far the largest proportion of modern stock, with over half built post- 1995 and 19% built since 2010, followed by Paris in which 38% was built after 1995. More modern office stock correlates on a regional basis with higher office re- entry rates, but it is impossible to disaggregate this from other influencing factors like the commute and living arrangements.

On top of office quality, micro-location vibrancy matters. Evidence suggests that cities which are more walkable and combine offices in mixed-use areas with residential, retail and leisure uses are more compelling to employees (Bloomberg, 2023).

CBRE’s global worker survey found that 64% of respondents stated that a better overall location was a desirable factor in encouraging them to visit the office more often (CBRE Research, 2022). Hence European cities which provide more multi-use live/work/play sub- markets and are highly walkable support higher office visitation rates than cites in the USA which tend to be single-use office locations in isolated districts due to zoning regulations.

Office age profile and micro-location vibrancy impact heavily on the vulnerability of sub-markets within a city to WFH.

Figure 7: Breakdown of Office Stock by Age, Select Global Cities

Office age profile and micro-location vibrancy impact heavily on the vulnerability of sub-markets within a city to WFH.

Conclusion: A complex picture

The analysis presented here in Part 1 of this series suggests that multiple factors influence the likelihood of employees in any country or city to WFH more often. These include the commute (time, cost, mode), living arrangements, cultural norms, pandemic experience, employment profile and office appeal.

In reality, a market has a mix of counterbalancing factors so it is impossible to isolate any one individual factor. The influence of individual factors will also vary significantly between and within countries, within cities and especially between the multiple sub-markets within a city.

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