Since the COVID-19 pandemic hit, many companies have implemented flexible work patterns in pursuit of better employee experience, real estate cost savings, and more sustainable operations. However, a McKinsey survey of real estate and employee experience executives from 50 companies reveals that most firms have only scratched the surface.
The survey asked how far along companies are in implementing 12 practices McKinsey has identified as key to developing effective and sustainable hybrid work strategies (for a description of the survey, see sidebar, “Our methodology”). Their responses suggest that many companies are targeting useful data and technologies and thinking strategically about on-site and remote work, but most are still struggling to strike the right balance in creating “true hybrid” work models. Even some of the most forward-thinking companies are leaving both performance improvements and more efficient real estate spending on the table.
In this article, we take a closer look at the findings and identify what companies are doing well and where they can improve. We also shed light on how various stakeholders can use the survey’s insights to inform their next steps. Based on our experience, companies that learn how employees are using workspaces and understand what changes are necessary to meet employees’ needs can allocate capital more efficiently and design more effective workplaces.
Developers and operators also have an opportunity to support tenants as they transform their workforces and workplace experiences. Real estate owners and investors can attract leading-edge occupiers by understanding the industry’s new imperatives and offering services and business solutions in addition to physical spaces.
Companies have figured out only part of the hybrid equation
The survey results revealed that almost one-third of the strategies we asked about, including gathering employee sentiment data and considering sustainability, are consistently being applied (exhibit). Another third of behaviors we have identified as best practices, such as leveraging advanced workplace technology and creating work-from-anywhere systems, were reported as being adopted by a smaller number of companies. Another third of best practices, including implementing a test-and-measure system and documenting processes, are eluding even the most progressive occupiers.
We have observed that relatively few companies have aggressively addressed the full spectrum of capabilities that would create a best-in-class workplace experience, which we find surprising given the ample potential benefits. For some, long-standing perceptions—including the notion that more days in the office is the measure of success—may stand in the way of meaningful change. For others, it may be that defaulting to old norms is easier than rethinking new ways of working. Companies may find that implementing magnetic and inclusive environments requires significant financial and leadership resources. Despite how difficult it can be to focus on the 12 practices described in the survey, we believe that the upsides, which include potential real estate savings and improved employee satisfaction and performance, are worth the effort.
Most companies are mastering several basic capabilities
Nearly all survey respondents agree that their organizations have created systems to gather employee feedback on the workplace experience, reflecting a growing awareness of the value of a positive employee experience.
Forty-one respondents agree that their companies have identified the moments that matter virtually or in-person. These organizations can help workers make smart choices about when being together is more impactful or notify them when colleagues in their network may be in the office. Such approaches may be better received than mandates that call for specific in-office days, especially if employees don’t perceive a benefit from being on-site at those times.
Thirty-seven respondents agree that their firms are using advanced workplace technologies to enable seamless working from anywhere—underscoring how tools such as videoconferencing and digital whiteboards became table stakes in the early days of the pandemic. We expect the next horizon to involve greater adoption of asynchronous communication, as well as the integration of augmented- and virtual-reality technologies to help facilitate interactions with colleagues.
Finally, nearly all respondents say that they consider environmental sustainability and climate risk in their workplace experience decisions, likely a reflection of the growing awareness of the built environment as a high carbon-emitting industry, which is directly or indirectly responsible for approximately 40 percent of global CO2 emissions.
Many companies are only halfway there on more dynamic practices
The survey identified weaknesses in how companies are preparing for changes to their workplaces. For example, only two-thirds of respondents say that their organizations’ physical workplaces could be altered if business requirements were to change, such as in the case of M&A activity or stronger competition for talent. Fewer than half say that they have a process to test and measure new concepts.
Twenty-nine respondents reported high levels of clarity about their company’s workplace experience goals. That could be a missed opportunity: a clear North Star vision for companies can provide valuable continuity as leaders test approaches to how, where, and when work is done.
More than half of respondents agree with the statement “our workplace experience strategy is informed by a wide range of interconnected data sets.” This indicates that nearly half of companies are not using advanced analytics to synthesize information such as mobility patterns, demographics, and employee perceptions. By failing to apply available business intelligence techniques to the workplace experience, companies may struggle to predict nuanced trends, such as if a specific population of employees is coming into the office less frequently than others.
Almost all companies are struggling with hybrid
Though organizations acknowledge that hybrid work is the new normal, most have not yet adopted true hybrid principles, which include creating policies, workflows, and documentation to help employees understand the most effective ways of hybrid working.
Twenty-two respondents say that they have a dedicated executive accountable for workplace experience. And only 16 respondents say that their organizations have a playbook documenting how work is done, meaning that they lack a key step in creating and communicating a unified workplace vision.
A well-documented approach to flexible work and an executive focused on its success are essentials for remote-first organizations and many companies born after the pandemic era. Traditional, largely office-based, and multinational companies may struggle to create these capabilities, but they are increasingly crucial to defining and communicating a company’s workplace experience philosophy and practice.
Workplace experience excellence can lead to better real estate decisions
In theory, a company that transitions from all of its employees working in the office all the time to a more flexible model can both improve its workplace experience for employees and create real estate efficiencies. In practice, due in part to some of the weaknesses revealed in the survey, companies may be missing out on some of these benefits. Here are a few examples of real estate opportunities that can become available to companies with the highest levels of responsiveness to changes in working patterns:
A clear purpose for the workplace
Companies that have established and communicated a North Star vision for their flexible work plan may find it easier to inspire employees to return to the office. Crucial to this vision is a keen understanding of which moments truly matter to company goals so that employees know why they are needed on-site and how their presence contributes to success. A leading life sciences firm, for instance, redesigned its headquarters around an approach it called “follow the molecule,” which means that floor plans follow scientific development—the discovery, research, development, and manufacturing teams work in spaces that flow from one to the next.
A clear purpose for the workplace can help leaders make decisions about locations, asset management, and investments in energy efficiency and other sustainability goals, as well as in hospitality and other experience services.
Lower long-term risk and higher elasticity
Companies that report a high level of gathering a “wide range of interconnected data sets” may be more confident in taking bold steps with their real estate choices. A clear data picture may enable them to move away from long-term leases and use a growing array of options.
Since before the pandemic, there has been steady growth in flexible workplace offerings, including serviced offices1 and third-party coworking providers. Today, more high-end office owners and operators are offering flexible office and meeting amenities under their own brands. Some tenant companies may be able to satisfy temporary demand for more desk or meeting space in the very building where they rent their primary space.
In addition to real-time space utilization data, companies that connect workplace and employee demographics, performance, and perception data can identify potential weaknesses in how well their offices are supporting or engaging specific populations. This could both improve the experience in existing locations and inform design and activation principles for new sites.
Accepting ongoing change
What is the definitive solution for flexible work? Many company leaders would like to land upon it and stick with it forever. But flexible work is by nature mutable, and companies need to accept that change will be continuous.
The future for corporate real estate teams may be more like how retailers operate today. Retailers don’t assume that today’s consumer behavior will remain constant; instead, they use sophisticated analytics and testing so that they can continually respond to changing needs and desires.
Some companies may find that their workplace needs require no dedicated office at all but rather higher budgets for travel and on-demand workspace and meeting services. Others may find that more days in the office for everyone is the most efficient solution. To compete for talent in a particular industry, companies may need to allow employees to work from the office only one day a week and in turn will have to focus on making that one day as effective as possible.
The most advanced employers understand that what’s working today may not work in, say, three years and that their system must be responsive. The ability to test, fail, learn, revise, improve, and scale can yield the highest-performing combination of policies, design, and activation strategies.
Owners and operators can attract leading companies as tenants
Owners and operators have an opportunity to differentiate their offerings by preemptively answering some of the questions that flexible work raises. One way is by establishing a reputation for designing creative spaces but also for using advanced analytics, portfolio flexibility, and hospitality services. These kinds of innovative companies treat tenants as community members and focus on providing solutions.
Amid a soft office real estate market in many major metropolitan areas,2 owners and operators looking to cater to the most forward-thinking occupiers could gain an edge in the following ways:
Supply technology to help occupiers understand usage
Leading real estate players work with occupiers to understand the gaps in their workforce strategies and offer a menu of solutions. These could include better data tracking so that tenants understand how their employees are using office spaces, as well as transparency into energy usage that tenants can use to meet energy-consumption-reporting requirements.
A fully connected technology experience is both employee facing (such as through employee experience apps) and executive facing (such as through building management software and dashboards).
Offer products that respond to ‘test and learn’ strategies
Forward-looking landlords work closely with occupiers to ensure that spaces are built to accommodate employees’ shifting needs. Options in the built environment could include modular furniture and designs and shared work and meeting spaces. Landlords can also host events, offer building amenities, and link tenants to services and activities in the surrounding neighborhood; these offerings can change over time to best suit tenants’ evolving needs.
By helping track and evaluate feedback from these explorations and engagements, the landlord of the future can help members evaluate and scale pilots for new ways of working.
Many company leaders today are preoccupied with the ongoing debate about days in the office rather than the capabilities and strategies being deployed to create a sustainable, responsive, and magnetic workplace experience. A world in which flexible work is the norm offers opportunities for companies to create happier, more productive workforces while maximizing efficiency in real estate spending. Getting that right isn’t simple, but the rewards can be well worth the effort.
