With reports coming out that Google employees won’t return to offices until Summer 2021 and the likelihood many large tech companies could follow suit, the demand for office space could continue to fall.
From our perspective the longer remote work continues, the greater the chance companies and employees will find a new paradigm as far as office use goes.
Though the positives and negatives of working from home can be debated, one area which I haven’t heard anyone complain is reducing their commute down to zero. As more people better fit-out their home offices and more schools reopen, the percentage of people and companies who find the benefits outweigh the negatives is likely to continue.
As a recent article from GlobeSt.com, Breaking Down the Case for Scaling Back on Office Space, pointed out the actual cash savings for companies and employees is huge:
Global Workplace Analytics estimates that companies can save roughly $11,000 per employee with a flexible work-from-home arrangement. This decrease is attributed to savings on office leases and an increase in productivity from the employee. Employees themselves can save up to $4,000 on commuting and food costs.
As a number of recent articles have found, more and more companies are starting to look hard at these costs.
Reuters has a captivating look at how Office landlords, beware: More of corporate America is looking to reduce space
An analysis of quarterly earnings calls by Reuters found that more than 25 large companies across different sectors are planning to downsize their office footprint, posing a threat to office landlords’ bottom lines.
Ronald Philip O’Hanley, CEO of financial services company State Street, said on his company’s earnings call last week that observers “should expect and hold us to a much lower footprint really starting quite soon.”
Another article found, 40% of bank execs plan to reduce real estate footprint: survey.
While banks have begun the slow, careful process of returning employees to the office, most executives aren’t expecting everyone to come back.
A survey by professional services firm Accenture found that about 61 percent of bank executives don’t expect to call all employees back to the office. And more than 40 percent of those surveyed are also planning to reduce their real estate footprints accordingly.
CommercialObserver.com had some observations on the state of shadow office space, Is There an Excess Shadow Office Space? It’s Complicated:
Several dealmakers who usually play up the bright side of things declined to comment. Even as yet-to-be-leased, newly minted space is coming online at One Vanderbilt and at several Hudson Yards towers, and Larry Silverstein still lacks a tenant to get Two World Trade Center off the ground, Manhattan continues to lose office jobs to the pandemic, with around 150,000 office jobs lost so far amid the outbreak.
Globest.com reported some are calling for a pretty significant decline in coastal Metros, Office Space Demand Expected to Drop 10-15% as More People Work From Home
A new report suggests the office real estate sector, especially in gateway cities like New York, San Francisco and Washington, DC, will feel the pain for years from the pandemic-led work from home trend.
“The notion that a well-located office building full of highly paid workers in or near a dense, expensive city is the best way to operate a successful firm has been challenged by the acceptance of remote work,” said the report by Green Street Advisors, a real estate research company. ”Coupled with an increase in individuals who no longer regularly go into the office, many more may consider moving further away from coastal city centers.”
While many forecast a significant decline in office space around major cities the opposite forecast is being given for industrial real estate especially distribution centers and warehouses in the Mid-Atlantic. One thing is for certain, there will be change coming out of 2020. Off-market and distressed asset investors may find success looking at ways to re-purpose office space or convert existing office space into what’s needed for the new normal.