Cutting Leasing Expenses in a Time of COVID

“With COVID–19, basically, each home has become an enterprise.”

So says Mark Pringle, senior vice president in charge of corporate real estate and global facilities at Dell Technologies and one of three outside authorities called on to speak to members of the US Senate Committee on Environment and Public Works on July 29, 2020. The topic of discussion in that hearing was on increasing the federal government’s efficient use of leased space during a time when many companies are requesting and even requiring that their workers telecommute, leaving office buildings nearly empty.

With COVID, remarks committee chair John Barrasso (R-WY), “we have had to find a way to get our jobs done and keep our economy going.” Telecommuting, the three experts testified (remotely, of course!), has proven to be a highly effective way of reducing the costs of operating a physical plant. American Express, for instance, was already saving $15 million a year before the pandemic arrived in the United States by allowing work from home. By offering that option, AETNA reduced its office footprint by 2.7 million square feet, saving a reported $78 million annually. And by permitting employees to work at home a day or two a week, from 2013 to 2016, well before COVID arrived, Dell Technologies saved real estate and utilities costs of $50 million, a figure that has improved substantially as the company deals with the health crisis by allowing 90 percent of its workforce to work from home.

COVID has come at a tremendous cost to the economy. But, notes Mr. Pringle, it also offers a clear opportunity to “reimagine work in ways that genuinely improve the quality of life for our nation’s workforce.” Adds Kate Lister, president of the industry-analysis firm Global Workplace Analytics, a survey conducted in June 2020 revealed that most executives expect that even after the pandemic passes, a substantial number of workers will work from home at least one day a week. By her reckoning, seven in ten workers want to do so. She adds that while the pandemic did not bring the telework trend about, it has certainly accelerated the demand for it, and it has underscored the inefficient use of office space under ordinary conditions.

According to the panelists, this lesson is not confined to the private sector. Ms. Lister observes that the Social Security Administration, many of whose workers have been operating from home since last March, has already reported cost savings of $900 million. The General Services Administration (GSA) has accelerated a savings program that began several years ago through telecommuting and other measures, decreasing its office space needs by 32 percent. GSA, according to Senator Barrasso, estimated in FY 2018 that 42 percent of all federal government employees were eligible to telecommute, which, by Ms. Lister’s account, could reduce the government’s need for office space by a full 25 percent, reducing not just direct costs but also improving the nation’s carbon footprint, since so many federal buildings are old and energy-inefficient.

Savings come in other ways, adds Senator Thomas Carper (D-MD), including by reducing travel demand during rush hour and lowering vehicle emissions. In his remarks before the committee, Senator Carper encourages a linkage of telework policies with increased funding for multimodal transportation such as bike paths and light rail.

While those strategies are useful in the nation’s capital and other large cities, they are less applicable to rural areas. Even with Department of Agriculture programs to expand rural broadband services, high-speed networks have yet to materialize in most places. This is an impediment to telecommuters away from the nation’s metropolises, and to the ongoing campaign to relocate federal agencies from Washington to inland locales such as Boise or Des Moines.

Even in major cities, notes Michael T. Benjamin, a senior official in California’s Air Resources Board, low-wage service jobs do not come with the option to work at home. This offers a further argument for building out a multimodal transit system. But for those jobs that can be done from home, parent corporations and agencies can realize substantial savings, as can the workers themselves, who save commuting costs. Ms. Lister estimates that if all federal workers were to be allowed to telecommute half-time, the immediate savings in office costs could amount to $11 billion a year.

The three expert witnesses warn that there are hidden costs associated with a new world of mass telecommuting. Many supervisors are uncomfortable with managing from a distance, used to measuring productivity by hours logged and not by work accomplished. Some wish to “tunnel” their employees’ internet servers so that outside activities such as media consumption and game playing do not occur during working hours, which is impractical in a time when most students are still sheltering at home and attending school online. Online organizations may find building organizational culture in a virtual office setting to be challenging, especially what Ms. Lister calls the “subtle grooming” that occurs as senior workers and managers inculcate values and mission objectives in employees.

Throughout the Senate committee’s hearing, for all that, no objection was raised against the idea of telecommuting, which may soon become standard practice—and which may, in the end, result in the government’s shedding of additional office inventory. One likely scenario is a hybrid workweek, where shifts of workers stagger time at home with time in the office, sharing desks and other workspaces and shrinking the footprint accordingly. According to the witnesses assembled for this congressional hearing, savings are there to be had, although the changeover is sure to produce some organizational culture shock. Still, as Ms. Lister notes in her closing remarks, “I think we just need to feel our way through this.”

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