Global CFOs have a message for real estate investors: We’re cutting space

There's talk of slashing footprint by up to 50%

CFOs worldwide are sounding the alarm about excess office space. (iStock)
CFOs worldwide are sounding the alarm about excess office space. (iStock)

The Covid-19 vaccine is being distributed across the country, but it may already be too late for commercial real estate landlords and investors.

Companies around the globe are looking at how they can cut costs in the wake of the coronavirus pandemic, and scaling back real estate holdings is one big way they’re looking to do so. Bloomberg analyzed transcripts from over 4,700 earnings calls between July 21 and Dec. 8, and found that one in eight “revealed that firms were rethinking their real estate needs.”

(If that figure seems bleak, consider this: Bloomberg says that “[g]iven the limitations of AI and live transcriptions,” even more companies may have discussed cutting real estate costs, but not have been captured in its analysis. Yikes.)

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Companies aren’t just looking at reducing their office footprint: According to the analysis, other possible cost-cutting measures include closing branches and data centers and attempting to negotiate lower rents.

Already, office vacancy rates in major metropolitan areas are reaching record levels. In Manhattan, the vacancy rate recently hit 13 percent, a rate not seen since 2003. In Chicago, the vacancy rate is 22 percent; in Los Angeles, it’s 21 percent. This could spell doom for investors and landlords who have significant holdings in those buildings.

The commercial mortgage-backed securities market, meanwhile, may see heavy losses if companies continue to scale back their real-estate holdings.

[Bloomberg] — Amy Plitt