The Great Lease Resignation

August 01, 2022 08:34
Photo: IWG

Right across the world, businesses are thronging to exit traditional, long-term office leases, replacing them with flexible agreements with reduced fixed space in city centre locations. IWG founder and CEO, Mark Dixon looks at the causes of this trend – and highlights how it’s dramatically transforming the real-estate industry and helping employers and employees save money, drive down carbon emissions and support local communities.

Just two or three years ago, it would have been hard to believe that mid-2022 would see so many businesses across the world adopting the hybrid-working property model, enabling their people to split their time between home, a local office and a smaller corporate HQ.

But a confluence of forces – burgeoning demand for flexible working and the liberating effects of digital technology, all intensified by the impact of Covid-19 – have dramatically accelerated uptake of a trend that was just starting to gather pace, revolutionising the commercial real-estate market on a global scale and driving for many a strategic re-orientation around people rather than space.

Now, in the latest outcome of this upheaval, we’re witnessing the rapid emergence of what I’m calling the Great Lease Resignation. Initially most visible in the US where leases of commercial property tend to be shorter than elsewhere, this is seeing companies terminate their long-term commercial office leases at an unprecedented rate, often replacing them with shorter-term agreements or new arrangements with flexible-workspace providers.

Significant financial savings

The reasons for this shift in strategy aren’t hard to find. As companies adopt the hybrid model, they immediately need less fixed space. And that means they can save money. In 2021, research from Global Workplace Analytics highlighted that on average companies can save $11,000 each year for every remote-hybrid employee. Employees gain financially too: they can save well over $6,000 each year by not having to spend on commuting and other work-related expenditure.

We’ve only seen the beginning of this phenomenon, with many companies being forced to wait for their current leases to expire before making the leap into a brave new world. But the intention is clearly there: just take a closer look at Hong Kong's office landscape, particularly in the banking sector. A total of 312,000 sq ft of office space has been shed by multinational banks in Hong Kong since the second half of 2020.

This is set to have a massive impact on Hong Kong’s real-estate market, with overall vacancy already climbing to 11.9% in Q2 2022, the highest since Q3 2003, pushing up the total volume of vacant space to a record-high 9.8 million sq ft, according to CBRE.

At IWG, we’re seeing very clearly the impact of these changes in action. Businesses that used to have, say, 10,000 sq ft of city-centre space are now opting for only around 20% of that, while additionally giving employees access to co-working centres and satellite offices close to where they live.

A long-term cultural shift

Change is happening at such pace that I’m certain we’re seeing a long-term cultural shift that means the office landscape will never be the same again. Look at it this way: the laws that used to say ‘you’ll get a good job if you commute into Hong Kong Island’ simply don’t apply any more. Geography has changed, and work can now be done from absolutely anywhere.

As the financial benefits for employers and employees demonstrate, the advantages of hybrid working are so powerful and important that companies everywhere will inevitably continue to adopt it as their preferred way forward. Recent research we commissioned among the leaders of FTSE 100 and FTSE 250 companies reveals, in fact, that three times as many large companies anticipate shifting to the hybrid model than are planning to stay as they are.

And the advantages go far beyond financial savings alone.

The power to retain talent

Another essential factor is the urgent need to retain talent in the face of what’s widely known as ‘the Great Resignation’, highlighted by recent research from Randstad showing that 31% of Hongkongers had planned to leave their jobs in the first half of 2022, marking an 8% increase from 2021, with work-life balance, and salary and benefits being the top two changing jobs drivers.

Our own research also highlights how flexible working is a deal-breaker for many workers, showing that a majority (76%) of office workers in the Greater Bay Area (GBA) are more likely to apply for job that offers hybrid working, with more than half (51%) preferring flexible working to a 10% pay rise.

A major reason for this is their quite understandable hatred of the daily commute, which is effectively obsolete in this era of the tech-enabled ‘anytime-anywhere’ digital office. So helping to eradicate the commute is an increasingly easy win for companies aiming to grow their emphasis on people-first policies as part of their talent-retention strategies.

Massive societal advantages

Third, and ultimately most important of all, are the societal advantages of this transformation. Taking millions of cars off the road by eradicating the commute is clearly one of the biggest steps we can take towards achieving our shared net-zero ambitions. Equally effective, with commercial real estate accounting for 40% of global emissions, is satisfying the growing demand among businesses for more efficient, best-in-class buildings with a lower environmental impact and healthier, more engaging workspaces for their people.

Enabling more of us to stay closer to home for more of the time also means we’re being freed up to see more of our families and friends, participating in community activities and supporting our local economies.

What’s very clear is that the Great Lease Resignation has only just started. It will continue to gather pace as more and more companies everywhere re-orientate their real-estate strategies around flexible working for everybody. This is a force that will reshape for the better how billions of people live and work in a world where geography matters less and less.

It’s a compelling vision that’s fast-becoming reality.

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Founder and CEO of IWG plc