Welcome to the era of the hybrid workplace. In San Antonio, big employers are increasingly flexible. – San Antonio Express-News

SAN ANTONIO — At Randolph-Brooks Federal Credit Union, it began in the summer of 2020. As COVID-19 upended the way they work, some employees began splitting their work time between the office and home.

Nearly three years later, about half of the roughly 1,500 employees assigned to the credit union’s administrative offices in Live Oak are on the hybrid schedule. And it appears there’s no going back.

“Pre-pandemic, we liked all of our employees to be on campus every day, working together, and part of our culture was that time together and being able to collaborate in that way,” said Ashley Ingle, senior vice president of human resources. “The pandemic showed us we could be successful in working from home and still be efficient and effective at helping our members, and so that’s what we’ve continued.”

Credit union staffers appreciate the flexibility, she said — and worry about losing it.

“Employees have asked us questions about if we’re going to force them to return (full time)… because you hear in the news about other companies that are requiring employees to come back to the office,” Ingle said.

The answer, at least for now: no.

Similar stories are playing out in offices across San Antonio, where the number of people working remotely has nearly quadrupled since 2019.

As employers began getting back to business in 2020, it was difficult to pin down how San Antonio workplaces would be changing. Some employers began herding employees back into the office within a few months of early pandemic lockdowns; others have only recently begun dusting off desks and choosing which days staffers should come in.

Now, hybrid workplaces appear to be the norm. It’s a work lifestyle many employees are loath to give up. And in today’s tight labor market, many executives are reluctant to force a full-time return to the office that might push employees to look for a position with more flexibility elsewhere.

‘A mainstream thing’

“I have learned over the last two-plus years that it just isn’t necessary to be in office for this line of business,” said one, who recently took a new job at a San Antonio insurance company.

He spoke on condition of anonymity for fear of repercussions from his new employer, which is rigid about employees being in the office. After having flexibility with his previous company, the different philosophy surprised him. But he accepted it in exchange for higher pay.

“It is such a mainstream thing now to have the option for employees to work from home,” he said.

Census data bear that out.

Nationwide, the number of people working remotely tripled to nearly 18 percent in 2021 from 5.7 percent in 2019, according to estimates from the U.S. Census Bureau’s American Community Survey.

In San Antonio, the portion working from home was smaller but represented a more dramatic increase from pre-pandemic levels. Census data show 15.1 percent of the city’s workforce was remote in 2021, up from just 3.8 percent in 2019.

Despite the upswing, there’s still friction. At some businesses, workers describe a generational difference: Older employees who have worked in offices for decades want to return while younger staffers don’t see the need and prefer the flexibility.

A respondent to an Express-News online survey about workplace options said being required to work in the office at all is a signal managers and senior colleagues “do not like or appreciate remote work.” They want to see employees answering emails and phone calls and stop by their desks.

“Even if it is a meeting that could have been a phone call, they want you to come in for an hour on Friday to ‘collaborate’ and watch you sit in front of a monitor for the rest of the day,” the respondent said. “Why would I stay here? Generous PTO.”

Office vacancies rising

It’s taken a few years for San Antonio’s largest employers to decide how their post-pandemic workplace looks, and to assess the impact on the city’s office market. That, too, is now coming into focus: As more employees stay home, office buildings are emptying.

“I think we’re going to continue to see overall vacancy rates pick up as companies try to figure out the best way they can navigate what they perceive right now as an employee-driven market rather than an employer-driven market,” said Leah Gallagher, San Antonio city leader at commercial real estate firm Transwestern.

At mid-year, Transwestern pegged the San Antonio office vacancy rate at 11 percent, which was lower than pre-pandemic levels. But, Gallagher said, that rate could have been skewed by companies in the midst of moving to new offices while still having leases in other buildings. By the end of the year, she expects the vacancy rate to be as high as 14 percent. In pre-pandemic 2019, it was 12.9 percent.

Net absorption — the difference between move-ins and move-outs — is another measure of demand suggesting employers are downsizing.

Transwestern data show absorption was positive at mid-year 2019 and 2020 but turned negative at mid-year 2021, with 110,091 square feet more space being vacated than was filled. That figure jumped to 446,674 square feet by the middle of this year. Gallagher attributed the increase in part to swaths of space being vacated or offered for sublease by big tenants such as Nationwide Mutual Insurance Co., USAA and Victory Capital Holdings Inc.

Vacancies and other changes in office space vary widely across the city.

The Northwest Side dominates the San Antonio office market, with about 17.4 million square feet of class A and B office space combined. The vacancy rate there is 9 percent for class A space, an industry term referring to the newest, fanciest and priciest offices, and 8.8 percent for class B space.

Downtown emptying out

The city’s central business district has much less office space — about 6.4 million square feet in those classes — and more downtown cubicles are emptying out.

USAA is aiming to sublease about 400,000 square feet in its offices downtown, citing less need for space due to the pandemic and its shift to hybrid and remote work. That alone takes the class A vacancy rate to 31.4 percent from 16.3 percent, Gallagher said.

“You’ve got a large amount of space available in what is a very small central business district,” she said. “I think we’ll see that space be absorbed. It’s going to take some time because it will likely require a new-to-market user to come in.”

Chunks of space are also empty in the north central area, which has a vacancy rate of 18.5 percent for class A space and 18 percent for class B space. That area includes the Alamo Towers, Petroleum Towers and other buildings facing low occupancy, Gallagher said.

Some employers also are seeking to upgrade to high-end space with more amenities in a bid to persuade employees to come back to the office and recruit new talent, she said. Still, others are focused on value. Many tenants here are local and regional businesses, and if they are spending more money on operations and salaries they may opt for an older building to reduce costs, Gallagher said.

The industries, economy and workforce in San Antonio also affect how many employees are returning to offices.

San Antonio does not have as many large corporate office tenants as Dallas, Houston and Austin, for example, Gallagher said. Rather, it’s home to more small local and regional firms. And it doesn’t have as many jobs that can be done remotely compared with some other cities. Primary industries include government, retail, food services and healthcare.

San Antonio’s economy is fairly steady — not prone to major swings. Net absorption numbers “have not been nearly as bad as many other markets,” Gallagher said.

“Because we’re a smaller office market, things like the USAA sublease in the central business district are very impactful,” she said.

What employers are doing

Though it’s becoming clear hybrid work is here to stay, the experience varies widely among the city’s employers.

Payment processor Usio Inc. was among the local firms to quickly return to the office after early lockdowns.

If an employee needs to run errands, care for a sick child or let a repair person into their house, they can work remotely or shift their hours. Sales and marketing staff work from home. Otherwise, president and CEO Louis Hoch prefers Usio’s roughly 120 employees to be in the office.

It’s important for bouncing ideas off of each other, problem-solving and improving skills, he said.

“Because we’re tech it’s all about innovation and innovation occurs through collaboration, and it’s just harder to collaborate remotely,” Hoch said. “Our (business) is so much about information sharing and knowledge transfer, and we just believe it needs to happen in house.”

It’s also crucial to the company’s culture, which affects retention of employees, he said.

Colleagues can get to know each other, find mentors and tee off at a golf simulator at Usio’s North Side office. There are holiday parties, celebrations of milestones and a candy stash in Hoch’s office.

“They build relationships,” Hoch said of employees working at the office.

When Usio executives talk to investors or attend conferences, however, it usually happens remotely. It means they can squeeze more meetings into a day and spend less time away from home, Hoch said.

“(Less) traveling has been a big benefit – not only the cost savings, but people’s personal lives,” he said.

Hoch thinks large companies are using return-to-work policies and economic headwinds to “right size” staffing.

“That kind of sets the stage for a better employer situation,” he said. “Right now, it’s been kind of dominated by the employee, especially in the tech fields.”

At USAA

Transwestern’s occupancy and other data do not include owner-occupied buildings, such as the massive headquarters of USAA, one of the city’s largest employers, or NuStar Energy L.P.

At USAA, more than half of the insurance and financial services company’s roughly 37,000 employees nationwide are on a hybrid schedule, a percentage that has been increasing. As remote work rises, the company has reduced its real estate occupancy by about 10 percent in the past year through subleases or expired leases.

The company aims to have those employees in its offices three days a week but has not dictated a timeline to accomplish that, said Chief of Staff Maria Cantu. Some teams are already back that often while others have asked for more time.

“We really want to put their experience and their flexibility first, because that’s what the market demands right now,” Cantu said.

In making decisions about work options, USAA watched what peers were doing and conducted surveys. Employee feedback indicated they value having the option to work remotely as well as face-to-face interactions with colleagues.

Offering flexible options is also important for retaining employees and attracting new talent, Cantu said.

Still, not everyone is pleased with USAA’s three-day in-office goal.

Some employees have left the company. But “by and large, that has not been as big of a risk as we were preparing for,” Cantu said.

“It’s about helping them connect the dots of this is more flexibility than we had before (the pandemic), we’re not taking it all away and we’ve learned to work differently,” she added.

NuStar, Frost Bank

At NuStar, employees with jobs that can be done remotely can work from home Mondays or Fridays and choose two weeks every year to work remotely, said spokesperson Mary Rose Brown.

“I am pleased to say that we now provide more flexibility for our employees,” she said.

NuStar employs about 1,200 people companywide, according to its website. It’s unclear how many can work remotely; Brown did not immediately respond to follow-up questions.

At Frost Bank, which has about 4,700 employees across Texas, about one-third are working full-time at the bank’s facilities, one-third are on a hybrid schedule and one-third are primarily remote, said spokesperson Bill Day.

“Employees say they like having options where possible, and we’ve heard good things about people feeling comfortable gathering with their groups more often,” Day said.

Last summer, Nationwide put its far West Side office up for sale as it shifted to a hybrid schedule and scaled back its real estate companywide.

Reserve Capital Partners bought the 270,000-square-foot building at 9903 Nationwide Drive in December.

The majority of Nationwide’s roughly 500 local employees are working remotely, but the company has leased back a portion of the building for those who still need an office, said spokesperson Joe Case.

“The transition to our hybrid model since early in the pandemic has been a success,” he said.

At Raba Kistner, employees who have worked for the engineering firm for longer than two years can work remotely two days a week.

Those with shorter tenures can work from home one day a week.

Anyone can apply to work remotely full-time, but Raba Kistner has only received a handful of requests, said CEO Chris Schultz.

That schedule was determined based on what employees wanted and trends playing out in the engineering industry.

“Right now the engineering world is very, very competitive. There are more jobs than there are people to fill positions,” Schultz said. “You have to have something that makes it attractive to be there.”

Schultz has not seen a major decline in productivity from the increased flexibility. He said he and his peers are concerned about young hires receiving mentoring, which is why he wants new employees in the office most of the week.

“Ours is a very hands-on, got to sit down at a table and teach people engineering stuff (industry) and it just doesn’t happen when you’re working remote,” he said.

In surveys for the annual Express-News Top Workplaces awards program, employees at various businesses cited remote options as benefits of their workplace.

“The flexibility to work remote eliminates commute time in traffic and allows more time for increased productivity without sacrificing family time,” an employee at Security Service Federal Credit Union said.

“I’m able to keep my stress level down by having a flexible schedule and the ability to work remotely,” an Accenture Federal Services worker said.

What’s next?

As demand for office space declines, some aging office buildings are being converted to other uses.

The Riverview Towers building on Soledad Street downtown has been turned into a pair of hotels with a rooftop bar and lounge. The AC by Marriott and the Element by Westin are set to open this year.

Also downtown, the owners of the Tower Life Building — a group that includes the McCombs family, local developer Ed Cross and Jon Wiegand of Alamo Capital Advisers — want to turn it into housing and retail.

The circa-1929 building is not self-sustaining and only about 40 percent occupied, they told Bexar County commissioners in August. Attracting tenants was difficult before the pandemic, they said, but the resulting increase in remote work and offices outside downtown has been another blow.

Office construction plunged during the pandemic but has recently picked up, with 1.1 million square feet of space in the works as of mid-year 2022.

Gallagher said many of the developers here are cautious about constructing new space and she is not concerned about over-building.

Actively will likely plummet in 2023 because of rising interest rates and concerns about a recession, she said.

“I don’t think you’re going to see a lot of new construction projects unless you’ve got a tenant committed to that space,” Gallagher said.

Another looming factor is tax bills, as properties are reassessed and landlords try to pass on those costs.

“That’s the next shoe to drop,” Gallagher said. “If we see a big jump, it’s going to be a significant expense for (tenants) to swallow.”

madison.iszler@express-news.net

Original News Source