Published September 15th, 2021 at 6:00 AM8 minute read
When Gerald Smith began discussing his plan for shared, flexible office space in Kansas City’s suburbs, his WeWork counterparts in New York balked.
They considered the concept strictly an urban phenomenon. Smith pushed back.
Plexpod, now with five locations across the Kansas City area, is the result. Shared desks, short-term leases for private offices, conference rooms and other amenities without the overhead of a traditional long-term office lease quickly attracted entrepreneurs.
This third option for a work environment – not a corporate office, not a converted bedroom in a home – also became attractive to more than just the techie types who originated the concept after working in coffeehouses on a laptop.
Then COVID-19 hit. Workplaces, now more than ever, aren’t just places to get things done. They’re increasingly a battleground over health and safety. And Plexpod is one of many places grappling with an unsettled and evolving workplace of the future.
“We do not feel like we have anything figured out,” said Smith, founder and CEO of Plexpod. “We have a lot of observations. But we feel like we are rolling with a script that is running about a day or two ahead of us.”
The pandemic isn’t just reshaping the future of work, it’s also prompting a tectonic shift in workplaces for employees, employers and landlords. Changes now underway may ultimately reshape how Kansas City looks and functions.
Earlier this year, many major employers targeted Labor Day to return to some semblance of normalcy in the workplace. But the Delta variant has thrown a wrench into their plans.
Cerner Corp., the city’s largest private employer, put its Continuous Campus near Village West in Kansas City, Kansas, on the market in August as it consolidated operations in other facilities. Very few employees were coming to work at the 660,000-square-foot campus near the Kansas Speedway.
Since then, both American Century Investments and H&R Block have decided to hold off on requiring at least some employees to return to the office as they strive to strike a delicate balance of hybrid and/or work-from-home arrangements.
H&R Block said that it will be making work-from-home arrangements, paired with three days a week of in-office work, the new norm for employees. The company has vowed “to remain remote-friendly.”
In a statement, the company said: “Our permanent hybrid plan, while currently postponed, includes transitioning to a three-day work week in the office – employees will spend Tuesday, Wednesday and Thursday on site – with the flexibility to choose where they work on Monday and Friday.”
The implications of such decisions are rippling through workplaces across Kansas City, and the nation.
“Employers everywhere are just not going to feel empowered to figure it out on their own,” Smith said, a thought echoed by others.
No one can confidently predict the direction the pandemic will take as vaccination rates remain lower in Missouri and Kansas than in other states and hospitalizations remain elevated. Guidance from health officials will be key, along with gauging public attitudes.
Prior to the pandemic, some futurists predicted that by 2030 up to 30% of the nation’s real estate market would be flexible work configurations, enabled by emerging technologies such as Zoom. But that shift is happening faster than anyone anticipated. Some sense the possibilities.
People inquiring about landlord partnerships with Plexpod “are endless,” far exceeding the company’s current capacity, Smith said.
“It’s a growth opportunity,” he said. “If we can just make it from now to wherever this is headed.”
Vacancies in the Greater Kansas City office market are increasing, up half of a percentage point in the second quarter to 15.1%, according to CBRE Group Inc. The company noted that total occupied office space in the area declined more than 630,000 square feet over the past four quarters, roughly the equivalent of one of the city’s larger office buildings.
Although office vacancy rates haven’t spiked dramatically during the pandemic, and rental asking prices remain fairly stable, it may be too early to measure long-term shifts in the office market.
For one thing, office vacancies are measured in terms of whether the space is leased, not whether it is currently being occupied. Moreover, existing long-term leases may not expire for years in the future.
A more telling indicator of brewing changes may be the amount of office space now being offered for sublease.
Since the beginning of the pandemic, the amount of space available for sublease has spiked 187%, according to CBRE, to about 1.5 million square feet.
There’s “a healthy level of uncertainty,” said Jon Copaken, principal of Copaken-Brooks Commercial Real Estate.
“As the variant continues to linger, things could change,” he said. “Some still don’t know if they are coming back into the office or when, so that delays planning and certainly talking about new projects.”
At the beginning of the pandemic, Copaken said there was far more talk about redesigning office spaces. But it’s lessened given the unknowns of the trajectory of the pandemic.
Initially, the availability of vaccines calmed some of that discussion, as it made people more confident that they would eventually return to the office, but perhaps in a hybrid arrangement, Copaken said.
Ultimately, one of the biggest shifts might be that employers are figuring out that they can function with fewer employees, and definitely with less office space. Copaken, for one, expects larger firms to eventually trim their footprints by up to 15%.
“A lot of the larger companies are interested in physically a little less space if their terms are coming up,” Copaken said. “But we’re also seeing some that don’t want to give up the space.”
While office landlords are bracing for reductions in demand, Copaken noted that one plus for the area is the growing demand for industrial space for the assembly, storage and delivery of goods that show up at our doors on a daily basis.
That’s good news for the region, given our heavy dependence on transportation, logistics and fulfillment centers, said Joe Reardon, president and CEO of the Greater Kansas City Chamber of Commerce.
“We’re a trade city,” said Reardon, pointing to logistics hubs like SmartPort and the new airport terminal.
On Sunday, Kansas City Southern chose Canadian Pacific over Canadian National in a $31 billion merger that, if approved, will create a unified rail line to connect North America – Canada, the U.S. and Mexico.
It’s a vision that has deep local roots, playing off of being the geographic center of the nation, with all that it offers in rail, air and freight.
COVID-19 spurred changes that were already accelerating in the labor market.
A massive wave in baby-boom generation retirements already was affecting virtually every work sector, from the trades and other skilled labor, to the service industry and white collar jobs.
But the number of retiring baby boomers spiked from 1.5 million in 2019 to about 3.2 million in 2020, according to the Pew Research Center, far in excess of previous projections.
“We’re in a low population growth phase, as well as a shrinking workforce,” said Anita Kramer, senior vice president at the Center for Real Estate Economics and Capital Markets with the Urban Land Institute. “More are retiring than there are Gen Z workers coming into the workforce.”
Technology advancements, automation and new ways to engage people in a workplace setting also are forcing change. As a result, employees are able to have more say in how and where they work.
“It is a fundamental change in real estate, this divorce between the workplace and the worker,” Kramer said. “Employees are going to have a say in how this works out.”
That observation is supported by a survey of 4,000 workers conducted by Monster on Aug. 30. An overwhelming 82% of those surveyed said they are considering changing jobs to find an employer with a return-to-work plan that fits their needs.
“I fundamentally believe that the world has changed in 18 months,” said CEO Scott Gutz in Monster’s fall 2021 hiring report. “Employees have changed their approach to work-life balance and the relative importance of being in an office setting vs. a home office setting.”
And many are demanding a new workflow that will reshape American cities.
A quarter of office buildings in the U.S. – about 4 billion square feet – are more than 60 years old, Kramer said. Some of those spaces may not be easily retrofitted, or even necessary as office space.
And despite the endless parade of delivery trucks to our doors, less than 20% of retail sales are online. Kramer said that means there is still a market for stores, just in reconfigured settings. Kramer believes many old shopping centers can be converted to mixed-use projects, with housing and less retail.
“These huge parcels can support some retail but not the kind that was there,” she said. “But we can create a whole new housing neighborhood. It’s a great opportunity.”
Last week, President Joe Biden introduced more complications for employers by announcing a mandate for private businesses with more than 100 workers to ask for proof of vaccinated status, or be tested weekly.
How the directive will play out is yet to be seen. But up to 100 million people could be affected, as federal employees and health care workers were included.
Until a few weeks ago, the vast majority of Kansas City area employers were not requiring proof of vaccination from employees. An overwhelming 85% of respondents to a Greater Kansas City Chamber of Commerce survey said they were not requiring proof of vaccination.
The reluctance to require vaccinations was attributed to fear of losing key employees in an already tight labor market and uncertainty about the legalities of requiring vaccination. Many respondents also noted that a majority of their employees were already vaccinated.
Seven of 10 respondents to the Chamber survey expressed concern with the surge of the Delta variant. Nearly half (48%) of the 184 businesses and organizations that replied said their offices were fully reopened, but 29% said they were still deciding what to do.
Anecdotally, employers in Kansas City worry about losing skilled workers who can now work remotely from their home in the metro, while being employed by and commanding the higher salary of a New York or Silicon Valley firm.
But those lucky workers will only measurably affect the local office real estate if this becomes a larger trend.
The decision to give up office space is an easier decision for companies that already had employees working remotely before the pandemic.
A Digital.com survey of 1,250 businesses that allowed work-from-home options prior to the pandemic found that 37% of these companies have permanently shuttered office space. Another 32% closed some space and 31% were still holding the same space.
When First Federal Bank of Kansas City first came to Helix Architecture + Design for help with a new corporate location, the company envisioned a 40,000-square-foot space to replace their current corporate headquarters, located in Kansas City.
The pandemic, and seeing how well workers fared working from home during the shutdown, changed the mindset.
Helix now is designing a far smaller, 20,000-square-foot office for the bank at Leawood’s Park Place.
“They reevaluated, ‘What does an office really need to look like?’ ” said Alissa Wehmueller, a principal at Helix. “They began to focus on the office as a space for gathering and learning and what are the reasons that you would come back into an office and to make it a destination.”
That meant a shift from the previous configuration of 1990s-inspired office suites where everyone had an individualized spot, to more of a coworking environment.
The new space will include 12 private offices not permanently assigned to any one employee. The concept is called “free addressing” or “hoteling.”
The design challenge is to avoid a sterile look, without the personal items of an individual’s desk. And to also design for future changes that might need to be made when the employees begin using the space.
“They really stepped forward,” Wehmueller said of First Federal. “But they realize that this is a bit of an experiment.”
Other clients also are asking for smaller accommodations to preserve space, such as changes to audio-visual capabilities or conference rooms, she said.
For law offices, the question of necessary footprint has long been shifting, said Matt Bohnen, chief operating officer with Shook, Hardy & Bacon, which occupies a skyscraper at Crown Center.
Old standards assumed about 1,000 square feet to accommodate each attorney and about three legal assistants per attorney. Space was necessary to manage file storage, hard copies of documents, desks for legal assistants and other resources, along with two sizes of offices, one for associates, the other for a firm’s partners.
Estimates now are about half that much space, or even less, per attorney, Bohnen said. And legal assistants now are one for every eight or 10 attorneys.
The shift to digital files, more remote work, younger attorneys who do more of their own crafting of emails and other written work, are key reasons. Assistants are now hired more for project manager skills.
Shook, Hardy & Bacon had planned on a hybrid approach for bringing people back after Labor Day, with some work continuing remotely, and some time back in the office.
As with many employers, the Delta variant and new mask orders have put the plan off indefinitely.
“Most law firms are going to be more flexible,” Bohnen said. “Someone being in the office five days a week just will not be the norm.”
That’s one reason why some law firms nationally are listing space for sublease. Shook Hardy grew in 2021, adding offices in St. Louis and New York. The nearly two dozen new associates that just started work this month are far more acclimated to working remotely.
But there are core functions, such as training to appear before juries, that should happen in-person. Office space must be designed to be inclusive and to encourage collaboration when people are in the office.
“It’s very difficult to make permanent decisions in a temporary environment,” Bohnen said. “Everything is subject to how the pandemic plays out.”
Flatland contributor Mary Sanchez is a Kansas City-based writer and a nationally syndicated columnist with Tribune Content Agency.