“3 in 2”: Bringing Back the Bay Area
October 6, 2021
Whether it was the suburban sprawl of the 1950’s, or the urban boom of the 2000’s, one thing has remained constant; Population centers are where the desires of individuals meet the needs of companies and organizations. For urban centers that were “overheating” pre-pandemic, coronavirus, assumed to be the death of the American City, may actually be its panacea.
Just a few generations ago, what individuals and companies wanted was a closed circuit ecosystem. Large-scale suburban campuses accompanied by suburban houses defined the American lifestyle. As societal interests changed, company practices adapted and the focus returned to the urban model, where open
innovation and collaboration, both professionally and socially, became the pre-pandemic epicenter of growth. This was driven primarily by the typical American household transitioning from your “Leave it to Beaver”, two parents, two kids and a golden retriever to the majority of households being singles or couples, without kids, in the city.
Picture this: You are a recent ambitious college graduate pursuing a career in tech. After rounds and rounds of interviews you finally land your dream job, working for an exciting tech company that will put you on a career path to reach the top of your industry and maybe eventually launch your own startup one day.
Now, let me ask you this: When you picture yourself in that scenario, where are you? Is it Salt Lake City? Boise? Perhaps, but it’s very unlikely.
All things being equal, young, talented professionals will always choose to live in interesting, vibrant places that will launch their careers and lives in the most successful way possible. If you want to build a career in finance, tech or media, where else would you choose to build that career if not New York, San Francisco or Los Angeles? Decisions on where to live aren’t always centered on work, but rather where talented people want to spend the first decade of their adult lives and innovative companies are dependent on that talent.
The key phrase, “all things being equal”, is the catch. In the real world, things are not this way. Certain cities will always have higher costs of living than others, just like certain cities will always have a more vibrant culture than others. These are the facts that are not going away anytime soon. In the case of the Bay Area, these same inequalities are the main contributors that prevent employers from retaining top talent and ultimately, growing. The four primary items, anti-business policy, cost of housing, cost of facilities and traffic congestion, have been driving companies to either relocate or strongly consider the option.
It doesn’t take a native local to recognize that the San Francisco Bay Area is both the best and most difficult place for a company to grow.
Over the last decade, the cost of scaling a company in the Bay Area has become prohibitive due to the cost of office space and the high cost/limited supply of housing. These two, paired with infrastructure designed for the Bay Area of the 1950’s (or 70’s at best), have forced companies to establish regional offices outside City limits or even consider a full relocation. These growth inhibitors will fall victim to the wrath of the Coronavirus as companies shift to a three days in, two days out (“3 in 2”) approach to in-office work, making the Bay Area more livable and affordable. Said differently, the coronavirus may be solving the capacity constraints that the local government has failed to.
In an analysis of three major employers in the Bay Area -Apple, Google and Facebook-we found that across the board, these companies are anticipating their employees to assume some form of a “3 in 2”in-office model, with some employees even working remotely on a more permanent basis. This may not be a positive change for the office sector, but for the Bay Area, this has the potential to be monumental.
By shifting a company’s work week 40% out of the physical office (2 days per week at home), 40% of company facilities are made available for corporate expansion.
Put simply: if someone is working from home, someone else can take their place in the office.
Throughout the Covid-19 era, most companies have shifted their entire workforce to work from home (certain industries excluded). As we enter the post-Covid paradigm, most employers have realized that roughly 20% of their workforce can work remotely on a permanent basis, while other roles require a certain portion of their work week to be on-premises (Managers need face time with their team and junior members need mentorship, training and leadership).
The table below illustrates how a 100-person company, through a combination of full remote and partial work from home staffing models, allows for a company to double in size without increasing their office footprint.
What this effectively does is reduce the facilities cost of the marginal employee by a significant amount, offering companies the opportunity to expand their workforce by the same relative amount with no increase in overhead or facilities costs on a per employee basis. By utilizing this opportunity, companies will see a considerable reduction in net cost of facilities load per employee. In the case of many large Bay Area employers who already have significant footprints here, the marginal cost of adding an employee in the Bay Area will be zero. For a company like Google, this could mean an increase of 42,600 employees at no marginal facilities cost.
Using 200 square feet per employee for office space, we were able to calculate the maximum potential employee count for those companies pre-Covid. Using these numbers, we were then able to calculate what a 40% increase in their workforce would look like.
This increase in workforce will not be an overnight phenomenon (as was the case for the national Work From Home orders). As companies slowly begin to recognize their hiring capabilities, the national workforce will still largely be working from their home offices, at least for a percentage of the work week. In the same effect that a large-scale hybrid work from home model would reduce office capacity by 20%, those same employees who are now working from home are removed from the city’s transportation equation. This will result in fewer cars on the road and more available seats on public transportation. Because traffic is not a linear equation, but rather a geometric one, the implications of a 20% reduction in commuter traffic could result in a significant increase in the commutable distance to the City.
In other words, if you remove 40% of the cars from the road, the distance an employee can commute could potentially double, and at peak times, through certain bottlenecks, triple (think San Francisco to Cupertino). The reduction in traffic is the resolver for housing costs. It expands the size of the Bay Area’s housing market. Places like Concord or Stockton become reasonable places to live if an employee only needs to go into the office three times a week.
For the San Francisco Bay Area, this “3 in, 2 out” hybrid office model solves three of the Bay Area’s four major growth inhibitors.
Put simply: 3 in 2 solves 3 out of 4.
There are many things that have contributed to the Bay Area as the epicenter of social and technological innovation. If it has shown us anything in the last 75 years, it is that there is an inherent synergy between innovation and geographic location. The concentration of talent in a small geographic area has created a flourishing ecosystem that never could have existed with a distributed workforce. The pandemic, through the reduction of facilities cost and congestion and the increase in accessible housing, offers a growth opportunity for this ecosystem that could extend the Bay Area’s reign as the innovation capital of the world for decades to come.