Amazon's Work-From-Home Reversal
What it means for the culture of work, and yes, the real estate market. Plus: I was wrong.
Greetings and welcome to all of the new readers of late to The Sunday Morning Post! My name is Ben Sprague and each week I write about the economy, real estate, and more. Whether you are reading on Sunday morning with a cup of coffee in your hand or whether you are catching up later in the week, I am glad you’re here.
I teased my friend this week for the tie he wore to an after-hours event along with his suit jacket and button-down shirt. He looked dapper and professional, no doubt about it. But I told him he was overshooting. “Mark, no ties since 2020!" I reminded him. Earlier this year I talked to a dry cleaner who said he thought business would be down permanently 40% as compared to pre-pandemic times because so many more people are now working from home, not to mention the fact that corporate dress codes are looser than they were in previous times for people who actually are in the office.
Yet Mark’s tie stuck with me. As I sat down to write this week, I wondered if maybe he was onto something. It was once counterculture to show up to a business event without a tie, and now it feels out of place to wear one. But maybe as most of us have zigged to lean into the looser standards, the zag of my friend is actually the way to go.
We Need You to Be Here
The topic this week is not ties, but the broader question of the ways we work. The context is not after-hours social networking events, but the 9.0 magnitude earthquake that originated from Seattle, Washington this past week in the form of a memo to all employees by Amazon CEO Andy Jassy, in which he informed the universe of Amazon workers that effective January 2025, they are expected to be back in the office five days a week. This is a jolt, not just to the Amazon employee base, but to the entire culture of corporate work in this country. When a giant like Amazon moves, others are sure to follow.
“I wanted to send a note on a couple changes we’re making to further strengthen our culture and teams,” Jassy began. Change #1, which is mostly unrelated to the work-from-the-office mandate that comes later in the letter, is a push to streamline Amazon's management structure by reducing the number of managers. Jassy said:
As we have grown our teams as quickly and substantially as we have the last many years, we have understandably added a lot of managers. In that process, we have also added more layers than we had before. It’s created artifacts that we’d like to change (e.g., pre-meetings for the pre-meetings for the decision meetings, a longer line of managers feeling like they need to review a topic before it moves forward, owners of initiatives feeling less like they should make recommendations because the decision will be made elsewhere, etc.)... Having fewer managers will remove layers and flatten organizations more than they are today. If we do this work well, it will increase our teammates’ ability to move fast, clarify and invigorate their sense of ownership, drive decision-making closer to the front lines where it most impacts customers…
I suspect there are few corporate workers in America today who cannot get behind the premise that too many managers can muck up a process, so there is nothing earth-shattering there. The real punch in the letter is in the following:
To address the second issue of being better set up to invent, collaborate, and be connected enough to each other and our culture to deliver the absolute best for customers and the business, we’ve decided that we’re going to return to being in the office the way we were before the onset of COVID. When we look back over the last five years, we continue to believe that the advantages of being together in the office are significant. I’ve previously explained these benefits (February 2023 post), but in summary, we’ve observed that it’s easier for our teammates to learn, model, practice, and strengthen our culture; collaborating, brainstorming, and inventing are simpler and more effective; teaching and learning from one another are more seamless; and, teams tend to be better connected to one another.
What the above boils down to is a return to the office for all employees, five days a week. The changes are set to go into effect in January 2025. One additional kicker outlined further in the Jassy letter is the return of assigned desks within Amazon headquarter offices, plus a somewhat Orwellian “Bureaucracy Mailbox,” as Jassy described it, for employees to submit “examples any of you see where we might have bureaucracy or unnecessary process that’s crept in and we can root out.”
What Comes Next for Amazon - and the Larger Workplace
Amazon workers do have some leverage. Many are extremely talented, to say the least, with skills that would be in demand throughout the corporate and technological ecosystems. Some may have the ability to bargain for a hybrid model if not remain at home completely. In fact, Amazon had previously urged workers to return to the office in May 2023 for at least three days a week. At the time, the plan faced significant resistance. Many employees, accustomed to remote work since the pandemic, voiced their opposition. Some felt that working from home was more efficient and allowed them to save on commuting time and expenses or to better care for loved ones. The dissatisfaction culminated in an employee walkout. The same resistance is bound to be felt and demonstrated against this past week’s missive.
I suspect that Jassy’s goals are actually two-fold. The first is the well-intentioned thoughts shared in the letter about the importance of in-person collaboration and shared productivity (even if many remote or hybrid employees disagree). The second, I believe, is that this may be a way for Amazon to cut employee costs by leading some workers to self-select out of working for Amazon. In other words, some employees might just quit rather than return to the office five days a week, and Amazon might be okay with that. Like many tech companies, employee ranks have swelled at Amazon since the pandemic. Just prior to the pandemic, Amazon had about 800,000 employees; today there are over 1.5 million. Amazon may actually want some of these employees to quit, which would reduce ongoing costs while avoiding having to pay severance packages or unemployment benefits - a company would always rather an employee quit rather than have to fire them, the latter being significantly more expensive to the company not to mention detrimental to morale of the remaining workers.
The Real Estate Impact
Imagine you were a key employee of Amazon, and during the pandemic you had uprooted your life from Seattle, Washington (or wherever), to move to Bozeman or Bend or Durango or Asheville. Hundreds of communities around the country felt the “Zoom Town” effect of population migration out of the big western tech hubs plus cities like New York and Chicago by people who wanted a lower cost of living, less density, and easier access to the outdoors, among other lifestyle perks. Feeling secure that the ways-we-work had changed permanently, maybe you would have bought a new house, enrolled your kids in the local school, and made friends and built roots in your new community.
What do these people do now? Some, perhaps, will actually re-uproot themselves and move back closer to a centrally-located Amazon office facility. This is no small task, to be sure, especially in such a complicated real estate market. Others will remain where they ended up, looking either for remote work for another company or in-person work in their community.
The impact on residential real estate could be profound. Home prices surged in Zoom Towns due to demand for living in these less dense areas. But if America experiences a widespread work-from-home reverse, the receding tide of homeowners could create a glut of new inventory of homes for sale in these places, which would lead to dropping prices. Many of these communities (especially in places here in Maine with especially low birthrates) do not have rapidly rising populations to help keep the floor up on the real estate market. If that work-from-home tide does reverse, watch out.
A Caveat
I referred to Amazon as “a giant,” above. Another way to describe them might be as a bellwether. You can bet there are other tech companies watching the Amazon experiment to see how it goes. Do employees revolt, causing Amazon to soften its stance? Or do the new rules engender the type of positive collaboration and uplifting in-person work environment Andy Jassy is looking for, leading to increased productivity and profits. Does the transition provide Amazon the opportunity to cut some employee costs, and, if so, does that result in improvements to the bottom line? Or does the loss of key talent who are not on board for an in-person work model cost Amazon more in the long run?
The caveat here is that Amazon is just one company. Sure, with a market value of nearly $2 trillion, it is not just any old company. But it still just itself. The technology that allows employees to work from home is only getting better and more ubiquitous. And the motivations that employees have who only want to work from home or at least to work in a hybrid model that does not require them to be in an office five days a week, are only likely to be more entrenched with the passage of time and generational turnover. Work-life balance, living in a less dense area, wage arbitrage (i.e. make Silicon Valley wage but live in a place with a lower cost of living), are not interests that are bound to go away. And the Amazons of the world (and those companies that are much smaller) have to compete for talent. You can bet your bottom dollar or your shares of AMZN stock that as soon as Amazon starts to lose in the competition for talent, its workplace policies are bound to be adjusted once again.
Final Thoughts
There are additional considerations at play her, each of which could fill its own article. A return to the office could be good for non-residential real estate values like office buildings and business parks, for example, which have seen their values plummet since 2020. Big city downtowns could be revitalized if workers return to offices.
On the flip side, many people’s career trajectories will be significantly impacted by a return to the office. Parents who need a hybrid model so they can be there for their kids, or adults who are taking care of their aging parents: there are plenty of implications if people either have to select out of a good career so they can maintain their presence at home or if they have to leave the communities they live in now to return to centrally located corporate headquarters.
In the end, though, talent and work ethic win out, along with the ability to get along with others. I suspect the seemingly strict Amazon work-from-the-office policy will be softened as leadership is faced with the reality that talent has leverage, and many people are never going back to the office, ever.
Ben Sprague lives and works in Bangor, Maine as a Senior V.P./Commercial Lending Officer for Damariscotta-based First National Bank. He previously worked as an investment advisor and graduated from Harvard University in 2006. Ben can be reached at ben.sprague@thefirst.com or bsprague1@gmail.com.
Weekly Round-Up
Here are a few things that caught my eye this week or are things I think you should know about.
As I will sometimes tell my kids, “Daddy is not often wrong, but it happens every once in awhile.” Two weeks ago, I wrote, “I cannot possibly imagine the Fed reducing rates by 0.50% after keeping them so high for so long. Not only is that in opposition to the hawkish philosophy on inflation of Fed Chair Jerome Powell, but it is against the overall Fed’s temperament. A significant interest rate cut like that could jolt the stock market in the wrong direction by injecting a dose of fear and panic. It would also be considered by many to be highly disruptive and potentially politically charged to drop rates by that much just prior to the election.” Oops. You know what they say: predictions are hard, especially about the future. On Wednesday, the Federal Reserve did, indeed, reduce rates by 50 basis points (i.e. 0.50%), the first interest rate cut in over four years. Stocks jumped on the news initially before giving up some of their gains to end the week.
There were about 909,000 homes for sale nationwide in August. While that is still below the 1.25 million homes for sale in August 2019 (pre-pandemic), it is up notably from the 670,000 homes for sale in August 2023 and and 727,000 in August 2022. I’ll have more on the inventory bump in future articles. Inventory is on the rise, which should eventually lead to an easing up of prices.
The average 30-year fixed mortgage rate is hovering around 6.15%, a full 100-150 basis points (1.00-1.50%) where it was this time a year ago.
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Have a great week, everybody!
Enjoyed the article. My personal thoughts are that amazon will have to soften the back to office stance to keep the help. We will see. Who wants to get all dressed up and battle the traffic again?