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23 May 2023, Homepage Featured, TRENDS ON THE GLOBAL ECONOMIC FRONT – May 23 2023

SPOTLIGHT: TOP TREND 2023, OFFICE BUILDING BUST

May 23, 2023May 23, 2023
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SPOTLIGHT: TOP TREND 2023, OFFICE BUILDING BUST

EMPLOYERS SURRENDERING TO WORKERS’ DEMANDS TO WORK REMOTELY

One of the tech industry’s greatest blunders, according to OpenAI CEO Sam Altman, was allowing employees to work remotely.

Now every industry is accepting that new reality.

When office occupancy ticked up above 50 percent early this year for the first time in three years, companies hoped they were seeing the beginning of a trend.

Apparently they weren’t.

Estimates of office occupancy rates vary. The number of workers in New York City’s office buildings on any given weekday averages 61 percent, according to the Real Estate Board of New York, a figure that mirrors findings by data service Placer.ai. 

Kastle Systems, which monitors swipe card data in 10 major metro areas, pegs the average close to 50 percent.

However, both agree that the number is not budging. “This holding pattern seems to indicate a stalled recovery” of office occupancy, Placer.ai wrote in an April report.

The result: 22.7 percent of the space in New York’s office towers goes unused, double the pre-COVID amount. In San Francisco, the rate is a record 29 percent.

The tower at 60 Wall Street has stood empty for almost two years since Deutsche Bank, the building’s only tenant, decamped to cheaper, better digs uptown. Singapore’s sovereign wealth fund and Paramount Group, the owners, are shelling out for a major upgrade in hopes of drawing new tenants.

About 58 percent of employers allow their workers to spend at least part of the work week at home, according to Scoop Technologies, which supplies workplace software to about 4,500 businesses.

Financial services firms were among the earliest to call workers back to central offices full-time. Now only 20 percent require it, down from 22 percent in February, Scoop found.

New York City mayor Eric Adams has implored workers to return downtown, saying, “You can’t run New York City from home.”

However, workers’ desire for flexibility is stronger than ever, particularly among people in their late 20s and 30s, David Smith, research chief at real estate services firm Cushman & Wakefield, told The New York Times.

The number of companies mandating full-time office attendance actually has shrunk from 49 percent in February to 42 percent now, Scoop reported, with the typical worker being on-site 2.5 days each week.

“Employees are going to push really, really hard against being in the office five days a week,” Scoop CEO Robert Sadow told The Wall Street Journal. Because the labor market is tight, workers have leverage and “most companies have been reluctant” to demand employees spend 40 hours a week in the office, he said.

As we have often noted, cities are literally paying the price of short time in the office. In New York City, an office worker not coming to the city every work day deprives city businesses of about $4,600 annually in sales, research firm WFH Research reported.

TREND FORECAST: As we have been forecasting for some three years, following the politicians locking down the nation and forcing people to work-at-home, there would be an employee revolt not to return to the office. After spending months at home, they came to realize how terrible it was to commute for hours back-and-forth to work and how much it sucked out of their lives. 

We also warned of a major Office Building Bust that would sharply drive down the prices of commercial real estate office buildings and businesses that depended on commuters. 

And as we have also detailed, now that reality has hit The Street.

In New York City, about 22.7 million square feet of office space is open to sublet, with more being added continuously.

Landlords are struggling to cope with their loss of tenants, cash flow, and property values, as we have documented in stories such as “Financial Squeeze Tightens on Office Landlords” (12 Jul 2022) and “Office Leasing Slump Reaches High-End Buildings” (4 Apr 2023.)

However, cities have not yet begun to plan in any detail for the drastically different future that remote work has created for them.

Each worker not returning to the city center five days each week costs New York City retailers and service businesses an estimated $4,661 each year in lost revenue, according to Bloomberg. Other cities face a similar loss of revenue and, ultimately, businesses.

Zoning and other regulations will need to be reconfigured to lure occupants into downtowns’ growing number of empty storefronts.

Municipalities also will need to brace themselves to take possession of office buildings that have been surrendered to lenders or foreclosed. 

Banks—especially in the new, more constricted financial environment following mid-March’s bank collapses—will be unwilling or unable to pay taxes on skyscrapers no one wants to occupy. 

Cities will take some number of those buildings for back taxes, then sell them at rock-bottom prices for redevelopment—if any takers can be found.

The need to find new uses for abandoned retail and office space will force cities to become laboratories of innovation that will evolve new concepts of city life. A new specialty will arise—consultants for city redesign.

FOR SUBLEASE: A THIRD OF UBER’S SAN FRANCISCO HEADQUARTERS

Uber is preparing to sublease about 269,000 square feet of office space in its four-building San Francisco headquarters, according to Bloomberg.

The company does not currently use the space after successive rounds of layoffs.

“This will not change our footprint in the city or impact space available for employees,” a company statement said. “We remain committed to our hybrid work approach, which emphasizes in-person collaboration, and continue to welcome employees to our Mission Bay campus.”

The layoffs, as well as the tech industry’s shift to remote work, have helped boost San Francisco’s glut of empty office space to a record 29.4 percent in this year’s first quarter, real estate service firm CBRE reported.

TREND FORECAST: Again, while The Street ignored the Office Building Bust, which they helped create, we had long forecast the trend and its implications as evidenced by these and many other Trends Journal articles:

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