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Fifty-two percent of U.S. companies have imposed a hiring freeze, half are planning or beginning layoffs, more than 40 percent have rescinded recent job offers, and an equal number have eliminated hiring bonuses they dangled in a tight labor market, according to a survey this month of more than 700 U.S. employers by financial and business services firm PwC.
Amazon, Apple, Oracle, and Walmart have announced layoffs or freezes in recent weeks.
At the same time, more than 65 percent of firms are raising pay and expanding mental health benefits for workers, the most common such benefit being the option of working remotely.
“Firms are playing offense and defense with their talent strategies,” Bhushan Sethi, co-leader of PwC’s people and organizations practice, told the Financial Times.
Layoffs torpedo employee morale and, if done poorly, can damage reputations, he noted. “People have long memories and social media plays a much bigger role now.”
While 70 percent of companies said they are expanding remote work options, 61 percent said they now require employees to be in a central office more regularly, indicating the hybrid work model is taking hold.
“September is shaping up to be a line in the sand for many companies’ return-to-office plans,” the FT noted, although many such deadlines have been imposed and then abandoned over the past 18 months.
With fewer workers, whether through remote work or layoffs, cutting space costs was the most common cost reduction strategy cited by respondents in PwC’s survey.
Twenty percent said they were reducing office footprints, while 31 percent said they were increasing their space.
TRENDPOST: The fact that employers are shedding, or poised to shed, workers—many of whom were rehired not long ago after the COVID War—highlights the weakness of the global economy and is another factor raising the risk of recession around the world.
TREND FORECAST: Reducing office space was the go-to cost-cutting measure cited in the survey.
That underscores the accuracy of our long-term forecast, first made shortly after the COVID War began, that office real estate would not only be a victim of the COVID era but also that the sector would shrink permanently in size and value.
We predicted, and documented, the shrinking need for office space in “Office Workers’ Slow Return Endangers Landlords, City Finances” (9 Mar 2021), “Corporations Continue to Shed Office Space” (13 Jul 2021) and “As Forecast: Companies Cutting Office Space” (12 Jul 2022), and many other articles.
As we noted in “Mass Expiration of Office Leases Threatens Landlords” (26 Apr 2022), owners of commercial real estate are facing a reckoning as they slash rents to lure a shrinking base of tenants, forcing them to demand property tax concessions from cities that will struggle even more to maintain police, fire, and public works infrastructures.
Although more people are returning to city centers to live, as we reported in “USA: Can’t Afford to Buy a Home, Can’t Pay the Rent” (15 Mar 2022), that will not be enough to fully restore the commercial ecosystem of restaurants, shops, and entertainment venues that grew up to serve a full complement of daily commuters.
As a result, downtown commercial centers in traditional office hubs such as New York City and San Francisco will not return to their pre-COVID size or vitality. We have detailed this trend in articles such as “Retail Chains Abandon Manhattan” (18 Aug 2020) and “Manhattan’s Commercial Real Estate Crash” (21 Sep 2021).
Landlords and investors have been contemplating turning empty office spaces into condos and apartments. However, a similar move to convert derelict hotels into residences has been snarled in regulations, which we detailed in “Plan to Turn New York’s Vacant Hotels Into Housing Not Working” (5 Apr 2022).