Can CRE Survive The 4-Day Work Week?

• Microsoft recently conducted its ‘Work Life Choice Challenge’ to test the 4-day work week.
• The experiment produced a 40% increase in productivity in its workforce.
• However while the results are promising, questions remain over the impact of a 4-day workweek on commercial real estate.

About a month ago, Microsoft shared the results of its program “Work Life Choice Challenge”, which shut down Microsoft offices in Japan every Friday in August, giving employees an extra day off each week. According to reports, the results were promising. 

“While the amount of time spent at work was cut dramatically, productivity — measured by sales per employee — went up by almost 40% compared to the same period the previous year,” the company said in a statement.

Furthermore, “90% of Microsoft’s 2,280 employees in Japan later said they were impacted by the new measures,” and the company was also able to save on electricity. 

The impact of the 4-day work week on employees has been widely documented. Studies have found that not only can it make employees happier — which is a key ingredient to work satisfaction — but it also makes them more productive and reduces their stress levels, therefore reducing the risk of burnout. 

While there’s plenty of research to support the move towards a 4-day work week for individuals, one area that hasn’t been explored or studied enough is how the 4-day work week could impact the CRE industry. 

The Cost of Underutilized and Misused Space

If people are working one day less a week, what impact will this have on existing office space? What will happen to that space during the day it’s not used? 

While companies might save on resources like water and electricity, the fact remains that they will still be paying full price for real estate. 

A recent study by Compass, Density, and ROOM titled “Booked: The Cost of Misused Meeting Rooms” could provide some insights. The study explores the financial costs of misused real estate in the open office and the impact of phone booths; though the report doesn’t provide insights into the financial impact of fully empty space, it does provide insights into the financial impact of wasted space, which can be a good starting point for companies. 

“Too many people use conference rooms as their own offices, or as places to find quiet, solitude and fewer distractions. This is a big problem for companies. The practice wastes space, and in offices, space means money.” 

The report argues that as real estate prices continue to climb — CBRE Global Real Estate Market report estimates that rent prices will climb 1.6% in 2020 in the United States — organizations would be wise to analyze how they’re using their space. Especially considering that real estate is one of the most significant expenses for companies. 

Underutilized real estate leads to millions of dollars wasted each year. One of the most common underutilized spaces in an office is meeting rooms. 

“According to Density’s 2019 Mid-Year Workplace Utilization Index, conference rooms were occupied by one person 36% of the time. Plus: three-quarters of the time, five people or fewer occupied that space. That can be an expensive drain on company coffers if adequate private space isn’t properly managed.”

The report translated the above into numbers. According to its estimates, “a single 15-foot-by-25-foot conference room in New York City could be the equivalent of $2,705.31 per month, based on CBRE’s $86.57 square foot average.”

Now, if a meeting room designed for 16 people is being used by just one person, that would mean that only 1/16th of the space would be being used, leaving 15/16th underutilized. Using the CBRE estimate of $86.57 per square foot, that would represent around $30,000 a year in misused real estate. 

And that’s just for one single meeting room. Imagine how much that number climbs when taking into consideration that most companies have more than 1 meeting room in their offices. 

The report found that when meeting rooms are used, they tend to be occupied by far fewer people than what they can accommodate. 

“36% of the time, conference rooms were used by just one person for a total of 4,203 hours during the month-long trial.”

“Because of this, an estimated 55% of space is wasted in meeting rooms that seat more than 12 people. If you spread that across 100 meeting rooms, averaging 400 square feet apiece, then the misused office space could tally 22,000-square feet. Assuming each square foot costs $50 to rent and costs another $17 on utilities, cleaning, repairs and taxes, then realistically, a company could spend upward of $1.4 million over the course of one year.”

Now what happens when it’s not just meeting rooms being underutilized, but an entire office building? This could potentially be the case for companies implementing a 4-day work week. While organizations can save thousands on utilities, they could also lose thousands or millions in underutilized space. 

The number would vary depending on how a company implements the 4-day work week. Organizations that allow all office employees to take off Fridays will likely only need to reduce their office footprint by less than 5%. However, organizations that will rotate the day people get off in order to keep operating 5 days a week will likely need to reduce their office footprint by a larger percentage. 

“Real estate is an enormous expense, and often the biggest financial liability for a company,” the report argues. 

If this is the case, then companies need to take into account the CRE cost implications of adopting a 4-day work week when comparing it to how much a company gains in productivity, and how much it saves in talent attraction and retention efforts. 

Another alternative would be to find new uses for office space that sits empty an additional day of the week. For example, organizations could use the space to host events like classes, workshops, or facilities where people can take tests (college admission tests, psychometric tests, etc.).