Office landlords have had a difficult three years. The next three could be even worse.
A CBRE survey found a majority of U.S. companies plan to downsize their office space in the next three years, the Commercial Observer reported. CBRE polled more than 200 executives between February and April.
Many of the employers looking to cut their footprint are fairly large. Among employers with at least 10,000 workers, 68 percent plan to reduce space. Smaller employers seem less inclined to do so: 36 percent with fewer than 1,000 employees planning to downsize.
Forty percent of those surveyed planned to use the office downturn as leverage to renegotiate leases, although the report did not indicate how they would do so. Leases are binding contracts.
On the flight-to-quality front, 32 percent of companies expressed interest in upgrading to better space — perhaps to lure remote workers back to the office. However, while 60 percent of firms are requiring at least some in-person work, only 57 percent of those firms are actually keeping tabs on attendance.
Big tech has been retreating from the office and that doesn’t seem likely to change soon. Forty-one percent of polled tech executives said in-person work was optional and only 26 percent are requiring employees to be in the office for more than half the workweek.
The survey is another bitter pill for office landlords, many of whom are dealing with rising vacancies and declining property values. A year ago, a report by NYU’s Arpit Gupta and Columbia University’s Vrinda Mittal and Stijn Van Nieuwerburgh estimated that by 2029, New York City’s office stock will fall in value by 28 percent, or $49 billion, as a result of remote work. Extrapolated nationally, half a trillion dollars of value could be erased.
The Real Estate Roundtable, an industry group, has urged President Joe Biden to bring more federal employees back to in-person work, believing the federal government — the country’s largest office tenant — could set a standard for the nation.
However, staff shortages and the prospect of losing more workers has led employers to resist such mandates. New York City scaled back its in-person rule.
Last month, the Biden administration requested workplace guidelines to boost in-person work in the government.
— Holden Walter-Warner
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