Teleworking is having a big impact on the real estate industry
The impact of telework on the business world has been a constant topic of debate in recent years. In 2020, many companies jumped into telecommuting because of the pandemic, and at first, it seemed that this model worked surprisingly well. Some even boasted about the benefits they had gained by eliminating the need for a physical location and allowing employees to work from the comfort of their homes.
However, three years later, the situation has changed dramatically. Many of these same companies are pressuring their employees to return to the office, and telecommuting is no longer viewed in the same light. Managers argue that productivity has declined, but this claim is the subject of controversy and debate.
In the business world, there is a saying that “if something can’t be measured, it doesn’t exist”. Decision-making in business is usually based on concrete, measurable data. However, in the case of back office, decisions are largely based on opinions and perceptions rather than solid data.
Phrases such as “teams tend to be better connected to each other when they see each other in person more often” or “there is simply no substitute for meeting in person” have become common arguments to push for a return to the office. These claims are made by influential business leaders, such as Amazon’s Andy Jassy and Google’s Fiona Cicconi. However, the validity of these claims remains a matter of debate, as there is no specific data to conclusively back them up.
Productivity is another aspect that has been used to justify returning to the office. However, measuring productivity accurately in a remote work environment is a challenge. It is not only about the quantity of work performed, but also the quality and impact of that work. In addition, other economic factors, such as wages and investment in work tools, also influence the perception of productivity.
It is important to note that productivity is not a constant metric; it tends to fluctuate in cycles, with periods of increase and decrease. Therefore, attributing the decline in productivity exclusively to telework may be an oversimplification of a more complex phenomenon.
The empty office landscape is an issue that is generating concern in a number of sectors, especially real estate and even finance. While employees express preferences for continuing to work remotely or adopting hybrid work models, some decisions about returning to the office appear to be driven by very different players. In this scenario, real estate developers and investment funds are at center stage.
Larry Fink, CEO of BlackRock, one of the giant real estate investors, has noted in Forbes the belief that a massive return to offices could increase productivity. This statement can be seen as an attempt to push to fill offices and give commercial real estate investments a more immediate purpose. The situation is pressing, with a considerable percentage of offices in the U.S. currently empty, reaching numbers not seen since the 2008 financial crisis.
Telecommuting came at a time when interest rates were low and even negative in some regions, leading investment funds to acquire office buildings with the expectation of making a profit when the situation returned to normal. However, the widespread adoption of remote working has shaken these funds’ plans, jeopardizing their investments and triggering a scramble to reverse this trend.
Banks, for their part, find themselves in a complicated situation. If investment funds are unable to meet their payments due to the decline in the value of real estate assets, banks could be forced to foreclose and be left with thousands of empty offices on their hands. This becomes a problem especially in a context of mixed interest rates and a subdued flow of credit, making it difficult to sell these properties. In short, banks again face the prospect of being stuck with a large amount of real estate that they cannot liquidate, something they experienced in the previous financial crisis.
The projected losses are significant, and telecommuting is seen as the main culprit. According to the McKinsey Global Institute report, remote and hybrid work is expected to drastically reduce the value of offices in major global business centers. By some estimates, there is talk of as much as $800 billion in losses by 2030, which equates to a 26% decline in the current value of commercial properties. Among all these affected cities, San Francisco and Silicon Valley are predicted to be the hardest hit.
A Morgan Stanley analyst report also backs up these projections, anticipating a sharp drop in the commercial real estate market in the coming years. Empty office space becomes a major economic concern, as it represents a financial burden for both landlords and companies that have invested millions of dollars in acquisitions, leases and renovations.
of office buildings. If workers do not return to the office en masse, this could have a negative impact on the economy of major cities.
In short, the conflict between in-office and telecommuting is not only impacting the way businesses operate, but it is also shaking the foundations of the real estate market and posing significant challenges for investors and banks alike. The future of commercial offices is uncertain, and the debate continues as solutions are sought to address this complex situation.