I’m taking a short break from analyzing the impact of Project 2025 on governance, finance and HR and will return to this topic soon.
As companies wrestle with return-to-office (RTO) mandates, many executives frame the debate as a binary choice: remote work versus in-office work.
Of late, there has been more debate about RTO. Gallup has reported that 50%+ of managers (not individual contributors) would quit their jobs if forced to work full time in the office. Stela Lupushor and I wrote about the unintended costs associated with return to work mandates in a new context – quantifying the costs of these mandates so that organizations can make more informed decisions.
As companies wrestle with return-to-office (RTO) mandates, many executives frame the debate as a binary choice: remote work versus in-office work. However, a deeper, more strategic question emerges when we provide a real world example and analyze the economic impact of forcing employees back to physical offices. The true calculation extends beyond avoiding sunk real estate costs to encompass human capital expenses, productivity losses, and attrition risks. When framed through a cost-benefit lens, the numbers tell a compelling story—rigid RTO policies often cost more than the sunk opportunity costs they are trying to avoid.
The Financial Trade-Off: Real Estate vs. Human Capital
Many RTO decisions stem from an effort to justify office space investments. Companies that signed long-term leases before the pandemic now face underutilized offices, prompting CFOs to mandate in-person attendance to avoid “wasted” real estate costs. However, this approach fails to account for the hidden costs of forced returns: declining productivity, increased attrition, and competitive disadvantages in talent acquisition.
McKinsey’s The Future of the Office report highlights that by 2030, office space demand in major cities is expected to decline by 13%, with $800 billion in real estate value at stake. Forward-looking organizations recognize that traditional office investments may no longer align with workforce needs. Rather than doubling down on office mandates, companies should repurpose funds toward creating dynamic, purpose-driven office environments that enhance employee experience and productivity.
A case study of a professional services firm in New York City illustrates this dilemma. The firm, with 1,000 employees, pays an estimated $18 million annually in real estate costs. If 50% of employees work remotely, half of that investment—$9 million—is effectively a sunk cost. However, consider the impact of a forced RTO policy that leads to a conservative 30% attrition rate. This 30% attrition rate is also conservative as recent research indicates that close to 42% of recent attrition is due to forced RTO policies. Assuming an average salary of $125,000 and a replacement cost of 1.5 times salary (a standard HR estimate), the economic cost of replacing 300 employees would be $56.25 million.
Even more concerning, the opportunity cost of lost productivity during turnover is substantial. If each departing employee took 45 days to replace and onboard — which is very aggressive — the estimated revenue loss would be in the millions. Research also indicates that it took organizations 23% longer to fill open roles made vacant by RTO policy enforcement. When compared to the $9 million in “wasted” real estate, the financial argument for RTO weakens significantly.
The Productivity Factor: Does Office Presence Drive Performance?
A key argument for RTO is the belief that in-person work boosts productivity. However, data suggests otherwise. A 2023 study by Stanford University’s Nicholas Bloom found that hybrid workers are 9% more productive than their fully in-office counterparts. Moreover, companies embracing flexible work models report higher employee engagement, which directly correlates with business performance.
McKinsey’s findings support this, emphasizing that the offices of the future must be designed for connection, with spaces that support collaboration rather than serve as rigid attendance mandates. Hybrid and flexible work environments that are built around intentional in-person experiences rather than compulsory presence can drive greater innovation and engagement.
Consider Atlassian, a 10,000-person organization that optimized productivity by reducing office space by 50%, making office visits optional but intentional. The result? An increase in productivity of approximately 40 minutes per employee per day, along with cost savings from reduced office expenses. Meanwhile, companies that rigidly enforce in-office policies—such as those in the finance and tech sectors—are witnessing increased employee dissatisfaction and, in some cases, attrition spikes.
The Retention Risk: Employees Vote With Their Feet
Rigid RTO policies are creating a talent drain, particularly among knowledge workers who have come to value flexibility. A 2023 Gallup survey found that 76% of employees would consider leaving their jobs if remote options were revoked. This trend is particularly acute among high performers, who have more leverage in the job market. Losing top talent isn’t just an HR issue—it’s a financial liability.
McKinsey emphasizes that companies must design offices with purpose—not as mandatory workspaces but as hubs for collaboration, community, and spontaneous interactions. Companies that fail to adjust to this paradigm risk losing competitive talent advantages, driving up turnover and replacement costs.
Jeffrey Pfeffer’s research in Dying for a Paycheck highlights another critical financial risk: workplace stress and its associated healthcare costs. With 83% of U.S. workers reporting work-related stress, inflexible RTO mandates are not just unpopular—they are driving up costs related to burnout, absenteeism, and even healthcare claims. Companies must factor these hidden expenses into their RTO cost-benefit analysis.
The Smarter Path Forward: Investing in Digital-First Workplaces
The debate should not be framed as “remote vs. office” but rather “traditional vs. digital-first.” Companies investing in technology-enabled workplaces—rather than clinging to outdated office norms—are emerging as financial winners. McKinsey’s report underscores the importance of digitally enhanced offices, where AI-powered tools optimize workspaces for efficiency and flexibility.
Keppel Bay Tower in Singapore, for instance, reduced energy costs by 30% through smart-building technology, while companies like Cisco and Honeywell are leveraging AI-powered systems to optimize office space based on real-time utilization data. These innovations enable companies to balance cost savings with employee experience, rather than imposing rigid RTO mandates that drive attrition.
When combined with AI-assisted work tools, these investments yield transformative gains. A recent MIT study found that companies adopting AI-driven workflow optimizations see productivity increases of up to 40%, while reducing overhead costs. These efficiency gains far outweigh the perceived benefits of enforcing in-person work.
The Bottom Line: Recalibrating ROI for the Future of Work
The financial case against rigid RTO mandates is clear. Organizations focused on reducing “wasted” real estate costs must weigh those savings against the significantly higher costs of attrition, lost productivity, and competitive disadvantage. The winning strategy? A hybrid, digital-first approach that treats human capital as the most valuable investment.
McKinsey highlights that the offices of the future must be flexible, sustainable, and experience-driven, with a focus on collaboration rather than mere attendance. Companies that embrace this model will attract and retain top talent while optimizing their cost structures.
Forward-thinking companies must reframe workplace policies through an economic lens: What is the cost of a disengaged, frustrated workforce? What is the financial impact of losing high performers? And what investments will yield the highest returns in both talent retention and business performance?
The companies that answer these questions with data—not tradition—will be the ones that thrive in the future of work.