A lot of times, when people discuss the phenomenon of employers ending work-from-home and try to make their employees come back to the office, people say that the motivation is to raise real estate prices.
I don’t follow the logic at all. How would doing this benefit an employer in any way?
It benefits the owners of commercial real estate. Which is primarily banks and investment firms.
Companies need to stay on the good side of banks and investment firms. Otherwise they don’t get loans.
But also, some of these companies own those buildings. If they’re not in use, their value in the market drops.
Also, there’s external pressure from cities and townships who give tax incentives to companies to bring their employees in to spend money in the city. For example, a company might get a tax break if they create a thousand jobs. That’s only a good deal for the city if those thousand people are in the city and spending their money and generating taxes.
I see, so the idea is that they’re responding to external pressure from governments and financial institutions? I guess I could see that, though it shouldn’t be hard to prove by pointing to specific policies and loan conditions.
But also, some of these companies own those buildings. If they’re not in use, their value in the market drops.
How does that work? Why would a buyer care if the seller was using the building? If anything, I would think using them would depreciate their value due to wear and tear.
If nobody is using any buildings then there’s an indefinety supply and no demand.
Buying something to create artificial demand usually isn’t a good investment strategy. A “pump-and-dump” can work if you can set off a buying frenzy and sell before it wears off, but it’s not a long-term strategy.
Besides, if that was the plan, leaving the buildings vacant would be just as effective as using them.
I’m speaking from experience in CA;
Quite a few of these markets were moved on pre pandemic. Now it’s a question of how to offload. My prior company had a very nice multi story building in SoCal before they tried calling back. That was before covid, even then they had trouble securing a purchaser or renter. The market has only gotten worse.
There’s some sunk-cost fallacy; where you’ve already paid for the space, if you make the whole team drive 1hr+ to meet it’ll have been worth it.
isn’t a good investment strategy…
long-term
It’s CEOs doing this, they don’t necessarily have to make things work out long-term as long as it doesn’t look like they messed up.
Some years ago the average tenure of a CEO was 18 months and it’s probably not changed that much since, so they really have no reason to worry about what’s going to happen in a 5+ year horizon: they will be long gone, bonus in the pocket and stock options fully vested and cashed.
What about modern business makes you think they have a long term strategy? All of them have been making only short term gain decisions for a while now.
Who cares if the company could be more successful in the future if I can make a lot now by sending it into bankruptcy today?
A big thing in my country, business buildings are expensive because of location and what’s around them. But if employees aren’t in the office, restaurants, cafes public transport corner shops etc lower in demand or even close entirely. This makes the building itself less in demand and harder to rent out at a higher price.
A lot of these buildings are owned by banks, CEO’s and financial institutions who have the money to push for changes like government to make people come into office and can use any reason like “think of all the failing cafes!”.
Ah, hm… I guess that makes sense. Bringing people to the office raises the value of surrounding retail, which in turn raises the value of the office. Thanks, that explanation clears it up.
Don’t forget if the company outright owns the building, any market price drop negatively affect there books, in asset/net worth section.
WFH makes it so there isn’t a buyer or very few interested.
So if you want to shift the property, you’re going to have a bad time.
A buyer is only interested if they have a use for the building. If work from home becomes the default way, then who would need to buy an office building?
What you’re seeing is the incestuous relationship between government and private enterprise that is characteristic of late stage american capitalism. Everything depends on people spending money, so businesses get tax breaks and other incentives from metropolitan areas for operating in those metropolitan areas. Imagine you have a company that employs 400 people in an office building downtown. Those 400 people will need to park their cars, they’ll buy coffees in the morning, they’ll buy lunch, they’ll go out to happy hour with their coworkers on fridays. Every one of those transactions benefits business owners in the city, and for every one of those transactions the city takes a cut. Now imagine that company goes full, permanent WFH. The office is vacant. The diner down the street closes. That parking garage that was built to meet a demand that simply isn’t there anymore is simply useless. Tax income drops for the city. Everyone whose livelihood depended on the manufactured demand created by colocation is in a lot of trouble now. The only people who aren’t getting smashed are employees, who now no longer have to pay to park, can make their own coffee the way that everyone has been telling them to for years now, can eat their own food at home or order delivery from the places closest to them rather than the place closest to the office, zoom happy hours mean they’re not spending money at the bar after work, this entire microeconomy that popped up to serve the needs of employees who had no choice but to all be in one place at one time starts to collapse. So you’re right to be suspicious that companies that pay rent are invested in keeping the rent high, but there are a lot of knock-on costs associated with a business district collapsing and there’s also a lot of carrot-and-stick from local/state governments in an effort to keep people in the office and keep them spending money near the office.
In my city a few old office buildings got turned into condos and apartments and those areas are flourishing but with slightly different businesses. Vacuums tend to get filled. If you pivot correctly you can even take advantage of it. The times they are a-changin’.
Oh thats the thing, yeah. There’s definitely something to transition to and given the way demand and prices have skyrocketed that thing is probably housing. The problem is that capitalism handles transitions as gracefully as evolution does. That is to say, the things that are wrong die screaming and make room for something that fits better.
I think something like that requires some kind of decent leadership in the community rather than someone trying to stick to the same old plan. That’s awesome to hear it’s working there. I hope it catches on. I’d love to go downtown for fun instead of work. I love the architecture
Sounds like capitalism running its course
The more a building is useful, the more the surrounding area is worth. If nobody is at the office, no one will rent the store fronts in the building. No renters, lower real estate price.
Imagine you’re a CEO had signed a 10 year lease on an office building in 2019. You’re likely stuck paying for that building regardless of it you use it or not. If you feel like working in office improves productivity (not saying it does, this is just a perspective a CEO might hold) how would you rationalize to yourself and the shareholders that you’re paying thousands (or millions) for something that you could be utilizing to benefit the company and leaving it empty.
Much of commerical real estate is actually leased, these companies are contractually obligated to pay for the property regardless of if they have people in office or not. They might not be able to exit these leases for years.
Also they could be angling for the entire work force to return to work (including other companies) as a means of restoring demand for office space. Which would benefit those who flat out own the land.
Giant sunk cost fallacy. Plus old school thinking plus desire for control.
Pretty much this. A surprising amount of executives are like"we already paid for it so we should use it" with no regard for the actual bottom line impact of forcing people back to work.
You made an unfortunate investment, don’t make it worse with your boomer corporate ideology
But the other way also exists, my employer is pushing hybrid work with flex desk, so they can do a building renovation without renting one more building.
But indeed before that came on the table many top managers didn’t liked the flexible work. But it was already in place as a concession to thc unions (cheaper than a raise)
Out of all the responses here, this is the only one that takes into account the actual psychological forces motivating the decision-makers.
The CEOs cannot justify their real estate expenses to their boards when employees are not filling those seats, and they likewise are contractually obligated to pay millions, hundreds of millions, or billions of dollars (depending on the company) for years to those lessors or lenders. There is a simpler motivation than “industrywide collusion and conspiracy to profit” - it is the motivation of these individual CEOs to appear competent and intentional despite that boulder they’ve placed around the company’s neck.
It isn’t a cross-company conspiracy. It’s each CEO’s personal but widely-shared motive to avoid embarrassment and their inability to adapt. Whether consciously or not, this is all those CEOs need to look at the “data” selectively and post-hoc rationalize RTO with platitudes like “increased collaboration and productivity” while ignoring the decreased morale, lost productivity from 2 hours of daily commute time, etc. It maintains the status quo that they assumed when committing to their property leases, and resolves any cognitive dissonance in the way most flattering to themselves (at the cost of their employee’s time, mental health, and personal freedom).
I suspect the real estate prices is a fantasy. I suspect the real reason is management addiction to close supervision and their lack of trust.
I believe it’s more about CEOs seeing the investor trend of making people go back to the office raising the company stock price. Simple as that there’s no need for logic when following a trend nets you several millions extra valuation
I think this is it too. A lot of big business is just a game of follow-the-leader. My small company recently instituted a return-to-office program when before they were encouraging employees to work remotely if they wanted since our jobs can be done from anywhere. When I asked about why they were doing this move now during my performance review, the answer I got was “A lot of other companies are making the same request of their employees.”. When I asked why those companies were doing it, they couldn’t give me a good answer.
It’s pretty infuriating that it took a global pandemic to finally prove to these corporate whip-crackers that you can indeed work from home and still be productive, and now they are trying to claw that back away from us a day or two at a time until we’re right back where we were.
In my company they closed down the main office in the city center since almost no one was actually going over. (Think whole floor and there’s maybe 10 people there at once). 4 months later they announced people would have to go back to work 2 days a week and they’re already planning for 4 days a week as it was pre COVID.
Luckily in IT they’re only demanding this of senior leadership and up since they know we’ll jump ship quickly. But the threat looms just so they can look for their investors who only care about their stock going higher.
The remaining office is the original startup building tiny as fuck, loud and uncomfortable with bad wifi in the outskirts of the city. I think the only reason they haven’t forced people to just go back is that they physically can’t fit all of them into the shitty office at the same time
That’s not really a fantasy at all. It works exactly the same way as the US health insurance practices.
Picture this. You break your leg, go to a hospital, but thankfully you have insurance. So they fix you up, then give you a paper with a number that says 140k$ (I wish I were kidding, this is real) on it. You sit there, completely fucking flabbergasted, but then it all makes sense. This number doesn’t even have to be what your leg operation is worth. This 140k$ is what they pulled out of their ass on that specific day, and then negotiated to get that money from your insurance company. The day goes by, you feel like garbage, the hospital has made a ton of money, and your insurance isn’t even mad, because they make orders of magnitude more, to the point where this is pocket change to them.
This is practically the same. A business would overpay you to sit in the office, your boss pays for the office, and that arbitrary amount of money goes to whoever owns the building. Issue is, they can keep cranking up the prices on non-residential buildings endlessly, because people keep paying them. Especially when it comes to hot locations like NYC, or anything similar, you know that someone’s either already paid for that office for 5 years ahead of time, and needs to justify the absurd cost, or the office floor is sitting empty, because the landlord is delusional
This thesis lacks logic. If a company already paid the office, people going into it or not changes absolutely nothing. And if the rent is going to end, you can save buttloads of money by forcing everyone at home.
There are taxes, utilities which have to be paid just because one owns the property. Commercial taxes are many times 2-10 times more than residential.
Those who have bought it would rather use it bcoz no one is buying it.
Rental agreements are usually multi-year contracts with increasing rent. Breaking contracts are costlier than calling people back to the office.
Edit: for those saying that rental agreements have already been paid, rental agreements don’t have an occupancy clause.
Logic behind rental offices needing occupancy is that usually the agreements are for big spaces for 10-15 years. If you have 3000+ sqft office space kept closed gives a negative perception of the company going in loss or the office being closed.
Public understood closed offices during the pandemic, but post that it harms the business. For a publicly traded company perception is everything.
One can pay utilities for keeping the lights up without making people come to the office. However people coming in and out also gives an impression of work happening and normalisation of the companies.
I run a small company with a 3000 sqft office space bought and paid for. For 6 months after the pandemic I did give an option for wfh. The word however spread that the office and the company has closed.
In business perception is everything.
Or you can just not use the office. It is very rare that rental agreements require full occupancy.
Again, when you have a rental agreement, the money is payed already, whether you are in it or not. No need to négociateur anything. People working in the building will actually cost even more because you have the electricity and cleaning and etc.
The building is money already lost for the company. There is no justifying anything. The decision was taken years ago. If the decision was to be taken now, now then you need to justify why you would loan a building when you can simply send people to work for home.
And finally, yes, those who owns will be angry. But who cares? A company usually doesn’t own its building and thus doesn’t care about their prices.
Why didn’t you just put on a sign on the front saying “we’re still open, here’s our contact info”?
Seems like a really easy problem to fix.
Didn’t help even when I had the front office open and populated with a receptionist. The overall look of the office without lights gives a rundown look.
If I am wasting money on power and other utilities I might as well use it.
For a sign people have to read it. Public would rather assume than read 3 words.
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I’d put a finer point on it: they’re trying to control their workers’ lives. They have an interest in workers spending money on commuting and having little to no free time and energy. You will obey.
Ding ding ding ding! 1000% this. It’s not about money, property or “collaboration.” It’s about control and the fear you’re off not working when at home.
This is the middle management problem. The upper management problem is the cost of a building.
I have seen this happen first hand. My friend works for a company headed by a founder CEO who is famously progressive. In the hight of the pandemic they even stated that they’d go WFH indefinitely. Past forward a couple of years they have finished constructing a shiny big new office building at the heart of the city. Now every one is being asked to come to the office 5 days a week.
Funny how they ask us to go to the office but keep building their offices where none of their employees can afford to live
But hey, if you aren’t burning many gallons of fuel per day stuck in traffic for hours while being very stressed for a job you could’ve done from home, are you even an adult?
There’s a lot of dumb answers here.
people say that the motivation is to raise real estate prices
It’s not the sole motivation and it’s not even “a” motivation for some businesses.
Basically, wealthy people generally are going to have all sorts of investments. If you own any commercial property then you’re going to exercise whatever influence you have to support people continuing to work on premise. That influence is often in the form of shareholders putting pressure on management.
Why would the shareholders of a company want them to take on additional unnecessary expenses like leasing office space?
Or rather, why do real estate company shareholders have such ridiculous levels of influence compared to other groups who would logically prefer more wfh?
Because if you move up the ladder far enough, they’re all the same group. Mister X sits at the board for companies a, b and c, but he also has a real estate portfolio. He’s not the one spending the money for these companies to return to office but he has a vested interest in people returning to office in general, so he lobbies for it wherever he can. Simplified example but you get the gist.
You are grasping at straws if you think the exact same shareholders work both sides in any but a few outlier cases. This is goofy logic that people who are not in management think how companies run.
Do you know what boards of directors are? These people are not running the company they just sit together every so often to give their opinion on shit. They’re sometimes related to the industry sometimes not. Again my example is a massive over-simplification of thousands of small colusions and conflicts of interests which drive these kinds of corporate wills. And for your info I did work in corporate management, not that far from CEOs so I do have an understanding, thankfully left that shit behind now though.
Yes I sit on three board of directors. I can assure you that the CEO or CFO or any other high level board members are not making decisions because they have interests in other entries. In fact as a board member, your job and pretty much your only job is to ensure those making decisions are doing it in the interest of the company they represent. If there are any conflicts of interest, we take an extremely close look at that. If a CEO or even a board member did not disclose some conflict, particular in financial matters, that would be one of the few ways to be removed. More so, that is one of the few ways shareholders could pierce the corporate envelope and sue a CEO or sitting board members for that matter.
Sure, whatever let’s you sleep at night. Capitalism is a perfect system and corruption doesn’t exist, got you 5/5.
Well less corruption than any other system.
That’s really not how it works. In the same industry sure. But not across vastly different industries like tech, legal, government, etc and real estate.
I would suggest you to check out warren buffets portfolio
Warren Buffet is not typical of CEOs. He’s an icon for a reason.
Warren Buffett is not directing resources from his position in one company to enrich himself in another company that he may have large personal holdings. That is one of the few ways shareholders can get around the safety of a corporation and sue a director.
More to the point, the board of directors are going to be extremely interested in the actions of Buffett if they think he is trying to enrich himself at the cost to their company.
Using him as an example that is.
It’s insidious.
It’s not influence as in “let’s have a logical and transparent discussion about wfh vs on premise”.
It’s rumours, back channel favours, manipulating numbers, etcetera.
Bear in mind not all companies are publicly traded. Plenty of closely held companies were started by grand dad and run on rumour and here say.
here say
*hearsay
As far as I understand it, there are political interests too. Not just the obvious, ie a city council wanting to see economic movement within the city. Any regular person with a pension likely has money tied up in real estate. Ensuring those pensions maintain value is a concern for governments.
That’s true, but I didn’t go into that because OP didn’t ask.
Here in Aus local council revenue is a function of property value.
Idk how much of this is true but I had read that in certain cases the companies got what is called sweetheart deals from cities for establishing their office in that city, what the city wants from these companies is tax paying citizens and usage of city businesses, again to create more tax paying citizens.
Now wfh means employees can move to a city which is cheaper for them or far away from the city for a more rural lifestyle (not exactly rural in many cases), so cities are unhappy and are ready to charge businesses for that and so businesses are trying to call back employees to keep their deals going
This certainly is part of it. I worked for a company that got huge tax breaks because they promised to hire x number of employees. Then they put in a hiring freeze and the city had to fight them for the taxes they now owed.
This was long before the pandemic but I’m sure this happened a lot
Big businesses often get incentives from municipalities for being headquartered there. The city wants employees in offices who might financially support other local businesses while they commute to/from work.
If the local economy is happy and office space remains in demand, coupled with savings they receive from incentives, property values rise. The property of a business is an asset, so the more valuable the property becomes, the more value the company owns.
Ok, so it’s about responding to local government incentives? I feel like that’s an important piece of the puzzle that’s overlooked when people say it’s about real estate prices.
Not only that, but many of these companies have huge fuckoff buildings and only occupy a portion of it. Tenants fill up the rest, and occupancy drops so does the rent. Pushing for a return to office pressures the smaller companies (who are run by sociopaths with very specific risk adversities) to do the same, lest they look like they don’t want to be like Big Daddy Fortune 500 up in the top floors.
It’s simple: the board and major shareholders also invest in office properties and trying to reduce loss of their investments.
It is a great one size fits all reason that includes the various banks and your CEO conspiring together to make your life worse.
Some bank executives and local government officials have been the first to push for going back to the office, so a lot of people are putting the blame on them.
Ok I’ll try to explain it. Imagine before if your company had 100 people and they all needed offices so you rent a place that has 100 offices.
Now you switch to work from home and let’s say only 20 people really need office space since the other 80 can just work from home.
Why would you continue to rent the building with 100 offices? You wouldn’t. Instead you find a place with maybe 30 max. And you’re not the only company doing this too.
So now nobody really wants or needs huge office spaces and the people who own these have trouble finding new tenants, demand isn’t very high so they’ll have to lower prices. That’s what people refer to, since the value of these buildings is partially based on the income they can produce. If that goes down then so does the overall value of the building.
It doesn’t hurt the employer unless they themselves just spent A TON of money building their own huge building. Then it would be mostly empty and a huge waste of money so it would look bad.
In addition to that companies make deals with cities for tax breaks based on the number of just they create in each location. Usually there is a rule about how many people need to be working in your offices.
I also heard a city mayor on NPR recently talking about how we need to get workers back down town because the smaller businesses like restaurants are doing poorly in those areas now as well. So I assume they are putting pressure on these companies as well. Instead of finding a new more innovative use for the spaces.
I think it’s because there just isn’t any sensible explanation so people are trying to come up with something.
The tech companies do have massive real estate footprints, but I think it doesn’t make sense at all, those are a cost center for them.
In Australia they are actually hiding the fact its about property value and pretending its to support the small and local businesses in the city, like cafés
The ones that were largely left to fail during COVID?
Won’t someone think of the cappuccinos!?
If there is no need for office block then there will inevitably be a drop off in the need to hire the space to work in, which in turn will lead to lower prices. Employers do not request higher costs.
In the UK, the government are pushing for return to work because of pressure from newspaper media. People buy papers on their way to work. The are no cost basis arguments with forced returns to work. There is an obvious case for net zero benefits.
