International Workplace Group: The Hybrid Work Boom

Hybrid working — the trend in which employees spend a few days at home and a few days in an office — is exploding in popularity. International Workplace Group (IWG), the largest provider of flexible workspaces worldwide, is at the forefront of this trend and recently released a whitepaper, titled “The Hybrid Work Boom,” to further outline why companies are switching to the hybrid working model as a recession looms.

Introduction

As the global economic outlook darkens due to high inflation, energy costs and climbing interest rates, financial leaders are preparing for a potential recession. A study by IWG found that 97% of CFOs are implementing or planning cost-cutting measures in response to this uncertain future. One of the strategies being employed is the hybrid work model, which offers employees a mix of central office, home and flexible workspace options. This approach has gained popularity due to benefits such as reduced commuting, improved work-life balance and financial savings for employees.

Additionally, 82% of CFOs believe that the hybrid model is more affordable for businesses, allowing them to avoid expensive leases and scale operations as needed.

The financial advantages of hybrid working extend to significant savings for organizations. Research by Global Workplace Analytics suggests that this model can save companies over $11,000 per employee per year on average. For example, technology giant Cisco has saved around $500 million over five years by adopting the hybrid model, reinvesting property portfolio savings into new technology. Stanford Professor of Economics Nicholas Bloom emphasizes that companies are adopting hybrid work because it is a profitable choice, allowing them to increase efficiency and agility in the face of economic uncertainty.

Reducing Facility Spend

As companies aim to reduce their fixed costs amid economic uncertainty, a significant number of CFOs are targeting reductions in facility spending, with 65% seeking a decrease of over 10% per year. The trend, dubbed the "Great Lease Resignation" by IWG CEO Mark Dixon, sees companies moving away from long leases in favor of more flexible arrangements.

A study by Arpit Gupta at NYU Stern School of Business found that leasing activity in Manhattan has declined sharply, and office occupancy rates are at their lowest in 30 years. The rise of hybrid work arrangements has been directly linked to this decline, as the demand for office space decreases with the number of days employees work remotely.

Hybrid working enables companies to significantly reduce their real estate footprint, as fewer desks are needed in central offices. This downsizing allows companies to save not only on rent, but also on office maintenance, energy costs and other expenses. Major companies, such as BP, have already begun cutting down their real estate portfolios and implementing hybrid working policies, with some even allowing employees to move anywhere in their respective countries. This shift towards flexible working arrangements and reduced office space is expected to continue as companies adapt to the changing economic landscape.

Goldman Sachs made headlines by ordering its entire staff back to full-time office work in February 2022, but the company is an outlier in the financial sector. HSBC, Lloyds Banking Group, Metro Bank and major tech firms such as Twitter, Yahoo, Yelp and Netflix have announced significant reductions in office space, embracing hybrid work models.

As a result, demand for traditional office space has declined, with Manhattan's net effective rents dropping by around 60%. However, flex space is booming, with IWG's usage data showing double-digit growth in the US since the start of 2022. Half of the CFOs surveyed in IWG's study have opted for short-term leases or shared workspaces, while 39% are considering moving exclusively to shared spaces.

The shift towards a "hub-and-spoke" model, combining smaller central HQs with satellite flex spaces in suburban and rural areas, saves companies money while accommodating employees' desire to work closer to home.

An IWG survey found that 77% of workers consider an office near their home a must-have in their next job. This approach provides financial flexibility for companies to invest in staff and business growth rather than maintaining expensive leases on underutilized office spaces. Additionally, the shorter commutes associated with this model offer health, well-being and work-life balance benefits to employees.

Reaping the Hybrid Productivity Bonus

Contrary to the belief that hybrid working might encourage loafing at home, research indicates that it leads to greater productivity. Ongoing research by Microsoft shows that productivity has boomed in the hybrid work environment, with an increase in the number of meetings on the Teams platform and multitasking during meetings. A survey on working from home in 27 countries revealed that over half of the respondents felt more productive, and nearly a third of workers in an IWG survey believed productivity was enhanced by the hybrid model.

Ann Francke, CEO of the UK's Chartered Institute of Management, announced that 84% of their members had adopted hybrid working in their businesses, and they were witnessing an uptick in productivity and company results. Studies generally place the increase in productivity brought by hybrid work at around 3% or 4%.

According to Bloom, the productivity increase can be attributed to two factors: time and efficiency. Employees who work from home two days a week save an average of 70 minutes a day commuting, and they spend 30 minutes of that time working more. This extra hour of work in a 40-hour week translates to a 2% productivity increase. Additionally, people tend to work more efficiently at home, contributing another 2% to the overall productivity.

Keeping Staff Costs Down

In economically challenging times, companies are focused on keeping payroll costs down, with 44% of CFOs in an IWG survey introducing forced redundancies and others reviewing salary bands or limiting promotions. Staff retention becomes more important during such times, and the benefits of hybrid working can play a key role in attracting and retaining employees. A study led by Bloom found that attrition rates fell by 35% and work satisfaction scores increased in a group allowed to work in a hybrid model compared to those working full-time in the office.

Hybrid working offers significant advantages in a tight labor market by allowing companies to draw from a more diverse talent pool and catering to potential recruits' preferences. With the share of job searches for the word “hybrid” increasing by 6,531% in the 12 months to April 2022, companies should be explicit about their hybrid working policies to attract talent.

Employees value the flexibility of hybrid working so much that they equate it with a pay increase of around 7% or 8%. This preference is particularly strong among women, people with children under 14, highly educated individuals and those with longer commutes. By offering hybrid working, companies can effectively save on payroll costs, as they may not need to increase salaries as much to retain employees.

Looking After the Triple Bottom Line

The triple bottom line, coined by John Elkington in 1994, refers to an accounting framework that considers a company's social and environmental performance alongside its monetary profit. Often referred to as the "three Ps" (profit, people and planet), this concept reminds leaders that their responsibilities extend beyond providing dividends to shareholders. Hybrid working plays a key role in supporting the three Ps: it increases job satisfaction, improves health and well-being, and reduces the negative impacts of long commutes.

Cisco's global study on hybrid working found that 55% of its 28,000 respondents reported decreased stress levels due to hybrid working, while 82% felt happier and more motivated. Additionally, 74% believed that hybrid working improved family relationships, and 68% experienced a positive impact on their physical fitness. Employees also benefit financially from hybrid working, saving an average of US$150 per week, or around US$8,000 per year, increasing their disposable income by 14.5%.

Hybrid working positively impacts the environmental bottom line by optimizing a company's real estate footprint and reducing commuting. Offices account for 40% of societal energy use, and each unused desk generates a ton of unnecessary CO2 emissions per year. Although working from home can increase residential energy use, it remains up to four times more energy-efficient than daily commuting, leading the EU to recommend hybrid working as a means to reduce energy demand during times of reduced oil and gas supplies.

Conclusion: Pushing Up Profits with Hybrid

Today, IWG is already working with 83% of Fortune 500 companies. Hybrid working can increase a company's profits by 10% to 20% due to enhanced productivity, reduced payroll and optimized facility costs. This model is especially beneficial during times of economic uncertainty, as it not only improves a company's bottom line but also supports employee work-life balance and well-being, resulting in a virtuous cycle. Furthermore, hybrid working offers environmental advantages, making it a crucial consideration for businesses that have not yet adopted this model.

To learn more about partnering with IWG, visit https://www.iwgplc.com/en-gb/develop-a-location.