The recent emergence of the omicron variant has led several companies, including big tech companies, to further extend their return to office plans. With nearly two years of remote work experience under our belts, large cost savings of remote work, and preference of many employees to work remotely, the shift to remote work looks more likely than ever to be a permanent shift. When financial incentives align so strongly with employee preferences it is difficult to envision a future that doesn’t include a significant amount of remote work.
Companies Spend a Ton of Money on Office Space
Companies that adopt a work from home policy will be more profitable on average than those who do not allow any remote work. Now that we’re all working remotely, some executives might see the existing spending on office space as a huge anchor weighing them down. It’s true that office space is a significant expense for a business and it’s especially true here in the Bay Area. According to CommercialCafe.com class A office space in Mountain View, where Google is headquartered, costs $88.50 per square foot each year.
Why we can use this as an estimate: Google’s cost to purchase and develop land in Mountain View might be less than the quoted amount on CommercialCafe but that is irrelevant. This is true both because this is an estimate and because any existing office space could be leased out at the prevailing market rate.
A more meaningful number
Unless you’re well versed in office space, a price of $88.50 carries little context. Let’s instead convert that into an estimate of the cost to provide an employee with a standard size office.
Thankfully there’s a nice online office needs calculator at costar.com which provides guidelines for what constitutes a standard, small, or director level office. Using these guidelines we can calculate approximately how much a company in Silicon Valley pays for office space.
|Office Size||Square Feet||Monthly Cost||Yearly Cost|
Of course, this is just the office itself. There are hallways, meeting areas, break rooms, and other such areas which take up square footage so it’s not uncommon to estimate as much as 200 square feet per employee as in this 2015 MarketWatch article. An estimate using 200 square feet would bring our company’s yearly cost to nearly $18,000 a year for each employee!
Reduction rather than elimination of office space
Even in a remote work environment there are still benefits to meeting with coworkers in person, it just need not be everyday. In a scenario in which we come into the office a single day a week, the employer can still significantly cut down on the amount of office space they pay for. With only a single day a week in the office, a company could provide the same accommodations for up to 5x as many employees as before while still having enough space. This would represent an 80% reduction in office space per employee. Furthermore, if the nature of the type of work we do in office is different then we might need even less space. This seems realistic as the primary benefit to meeting in person is improved collaboration. However, even at the more conservative estimate of an 80% reduction in office space, a Silicon Valley based company could save over $10k per employee every year.
The Home Office Alternative
When we first went remote, I set up shop in our second bedroom. Initially it was great to have my own windowed office at home, but we had also found out right before the pandemic that my wife was pregnant. The dedicated office unfortunately would not last and eventually our office doubled as a nursery in our 800 square foot house. After spending another seven months sharing my office with an infant, I felt determined to ensure any future house we bought had space for a dedicated office.
When it came time to make our most recent real estate purchase, a home office was front and center in my mind when evaluating potential properties. I suspect a home office was also on the minds of many other urban dwellers who left cities for more space during the latest housing boom. To estimate the premium paid for a home office I’ll take the average price/square foot and multiply it by the square footage.
Sunnyvale Comparison @$983/sq ft
|Office Size||Square Feet||Monthly Cost (30yr Loan @3.3%)||Total Cost|
I chose Sunnyvale as the first comparison location because the city is adjacent to Mountain View and is a good starting point for understanding sensitive financial benefits are to changes in property values. To get property values for Sunnyvale I used Redfin’s insights tool to quote an average price per square foot in recent home sales. Comparing to the expected corporate expenses to the cash flows of a mortgage, the home option appears to result in improved cash flows at all office sizes. While it’s not clear how economic gains will be split, there do appear to be economic gains by switching to remote work.
East Bay Comparison @$460/sq ft
|Office Size||Square Feet||Monthly Cost (30yr Loan @3.3%)||Total Cost|
I chose the second estimate using an average of my home’s purchase price and the comps used in my appraisal. While my home is further away in Martinez (about 60 miles away), it feels like a safe estimate for a couple reasons. First, the price is consistent with other East Bay locations. Second, when an employee might only come into the office once or twice a week, a commute of 60 miles each way is much more tolerable.
In this second example the lower housing costs really benefit the home office. For the $1106/mo. that a company might be spending on office space for an employee, that same amount could be used to get a massive home office at almost half the cost each month.
Beyond the economic gains from reduced office space expenses, the employees also benefit from spending less time and money commuting.
- Time – A move from commuting 5x a week to only 1x a week allows an employee to increase their commute time from the current average of around 30 minutes to 75 minutes (each way) and still save about 2.5 hours of commuting time each week. For an employee in Silicon Valley making $150k a year that time is worth $781 per month or $9375 annually
- Money – Given the same drop in commuting from 5x to 1x per week the change in commute costs also decrease. If we assume the change in commutes above is from 20 miles to 60 miles then the employee will commute 80 miles fewer each week. At the 2021 IRS rate of $0.56 the reduced commute costs add up to $340 monthly or $4077 annually
In total, a high earning tech employee could benefit $13,452/yr by extending their commute when reducing their days in office from 5 days a week to 1 day a week. The direct mileage savings alone provide enough of a financial incentive for an employee to move further out for a home office and as a side benefit they’re also less stressed from traffic!
How it all adds up
Between the value an employer saves on office costs and what an employee saves in time and money there is more than $24,000 in value per employee in switching from working in the office every day to working in the office once a week. While old habits die hard, multiple years of work prove we can successfully work remotely. Moreover, the huge benefits to doing so make me think this is a trend that will persist. The recent omicron variant makes it even less likely we see a mass return to the traditional work schedule and that wouldn’t be a bad thing.Log in or Register to save this content for later.