By Norman Dong, Chad Habeeb, and Joe Delogu
In his March 2022 State of the Union address, President Biden declared “It is time for America to get back to work and fill our great downtowns again with people. People working from home can feel safe and begin to return to their offices. The vast majority of Federal workers will once again work in person.” Since that time, the situation has largely remained unchanged with significant numbers of Federal employees continuing to work primarily from home. This has left many owners and investors of commercial real estate wondering if and when agencies actually will follow through on the President’s early 2022 commitment to return Federal employees back to the workplace.
OMB Memorandum M-23-15, released on April 13, 2023, provides some additional guidance to Federal agencies on returning to the workplace. The OMB memo encourages Federal agencies to consider the balance between in-person work and remote work in the context of organizational health and performance. According to the memo, “It is the expectation that…agencies will continue to substantially increase meaningful in-person work at Federal offices, particularly at headquarters and equivalents, while still using flexible operational policies as an important tool in talent recruitment and attention.” The guidance also states how “Agency workforces are generally expected to increase meaningful in-person work that is purposeful, well-planned, and optimized for in-person collaboration…” These statements seem reasonable enough and, as many news outlets have been reporting, suggest that perhaps the Federal Government is finally catching up to at least a hybrid approach where most private companies and state/local governments have been for a while now.
However, much of the language in the OMB memo clearly aims to “soften the blow” for those who continue to advocate for the status quo. The OMB guidance contains no clear targets for increasing the numbers of Federal employees working in the office. Nor does it provide any clear guidance on the number of days employees should be working in the office vs. remotely, as most private companies and state/local governments have done. Instead, the OMB memo, which weighs in at 19 pages, places considerable emphasis on the need for agencies to conduct additional evaluation and studies on the operational impacts of telework before making any final decisions.
The approach to returning employees back to the office outlined in this latest OMB memo largely mirrors the approach outlined in OMB’s original guidance on this topic back in June 2021. Both then and now, OMB provided maximum deference to Federal agencies to devise their own policies on remote work based on organizational mission and function. Both then and now, the guidance from OMB fails to articulate any minimum standards or “guardrails,” leaving agencies to figure it out entirely for themselves. While the OMB memo recognizes the complex array of mission and functions among Federal agencies and rightfully steers clear of a “one size fits all” mandate, it nevertheless fails to provide any clear direction to support Agencies in fulfilling President Biden’s mandate for the vast majority of Federal workers to return to the workplace.
The lack of minimum standards or guardrails may be leading to some unintended consequences for the Federal agencies. The tight labor market and competition for talent at the Federal level have compelled agencies to offer maximum telework to attract and retain employees. OPM Director Kiran Ahuja has emphasized the importance of making telework available to eligible Federal employees and warned that Feds are “agency-hopping” to more telework-friendly offices. But in the absence of clear government-wide direction and minimum standards on the balance between employees working in the office and working from home, no one should be surprised as Federal agencies are forced to compete with one another to offer the most generous telework programs.
For the commercial real estate industry, which has shouldered the economic impact of the Federal telework for more than three years, this latest news from OMB undoubtedly will be a huge disappointment. In the aftermath of the pandemic, the Federal government has doubled-down on the effort to reduce its real estate footprint, a downward trend that has continued over the past decade. The reduction of Federally assigned (and often not occupied) space has had a clear and quantifiable impact on market dis-absorption and property values. With this latest “guidance” from OMB, we can expect continued market dis-absorption continuing into 2025, and perhaps even longer depending on the outcome of the next election. As the Federal government continues to avoid providing clear direction to return employees to the workplace, the commercial real estate industry, and the American taxpayer, will ultimately bear the burden.
This latest memorandum from OMB fails to establish sufficient clarity and urgency to bring Federal employees back to the workplace. Over the near term, we see no meaningful divergence from the status quo. Until OMB is willing to provide clear direction on this issue, the Government will continue to fall short of delivering on President Biden’s commitment.
For questions about this white paper please contact:
Managing Director, FD Stonewater