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Major corporations continue downsizing their office space, many finding it worthwhile to take a one-time charge to sublease space or void leases altogether instead of holding onto useless square footage.
“COVID changed everything and we became a remote-first company,” Michael Linford, CFO of loan company Affirm Holdings, told the Wall Street Journal.
Ninety of the 100 companies surveyed by the consulting firm McKinsey & Co. will adopt a combination of remote and on-site work structures, the company said, indicating that office space across the U.S. faces major long-term, and perhaps permanent, vacancies.
Affirm, online ratings site Yelp, and drug wholesaler McKesson are among companies that have recently reported taking one-time charges to rid themselves of office space no longer needed.
Companies incur charges when they sublease space for less than they pay for it; the charge accounts for their loss.
Affirm took a one-time $11-million charge in this year’s first quarter to sublease one of its two San Francisco offices, which it has leased through 2025.
Yelp is allowing employees to choose where they work and, as a result, also will take an $11-million charge to sublet office space in New York and San Francisco. However, subletting the space will save the company $11 million to $12 million annually through 2024 when the leases expire, Yelp CFO David Schwarzbach said to the WSJ.
McKesson, with about 76,000 employees worldwide, will take charges worth $180 million to $280 million this year to restructure its office footprint after adopting a hybrid work model, CFO Britt Vitalone said in a May statement quoted by the WSJ.
The restructuring will permanently save the company $60 million to $80 million a year, he said.
During this year’s first quarter, 34.8 million more square feet of office space was vacated across the U.S. than was leased, the widest spread in at least 20 years, according to real estate services firm CBRE.
On 31 March, 16.4 percent of U.S. office space stood empty, compared to 13 percent a year before, real estate firm Cushman & Wakefield said. (See “Companies Shedding Office Space at Record Rate,” Trends Journal, 5 January, 2021.)
Office usage varies by city. In New York and San Francisco, about 20 percent of workers are back in their towers, while 50 percent have returned in many Texas cities, according to data from Kastle Systems, which tracks swipe card usage.
Some tech companies, including HP and Oracle, have announced plans to move their headquarters from pricey California cities to Texas.
TREND FORECAST: We had forecast this trend in 2020, predicting that the COVID War would accelerate the work-from-home trend; now 44 percent of eligible workers now want to make it corporate policy, according to a recent ZipRecruiter survey.
A May Bloomberg survey of 1,000 U.S. workers found that 39 percent would consider quitting if their companies demanded they return to the office full-time – a daunting prospect for employers in a labor market where skilled talent is in short supply.
A significant number of those workers have already moved farther than commuting distance away from their offices, making it even harder to lure them back to their company quarters.
We continue to forecast a broad decline for office property occupancy and values, especially those in suburban locations that lack the shopping and entertainment venues that make downtowns attractive.