Will Remote Work Crush Landlords?

Key Highlights

• Real estate industry faces potentially grave threat as remote working becomes the new normal
• In one year, market values of office towers down -25%

Office Vacancies Climbing to Highest Decades-Long Levels

During the pandemic year of 2020, businesses discovered they could function quite well, thank you very much, with nearly all of their workers doing their work remotely.

This “discovery” of remote work, likely to continue in some form or another, could whack real estate industry professionals and landlords across many of the country’s cities.

Jamie Dimon, head of JPMorgan Chase, said in a letter to his company’s shareholders last week that remote work would more than likely “…significantly reduce our need for real estate.”  Instead of needing 100 in-office employees, his bank “…may need seats for only 60 on average.”

Vacancy Rates in Office Buildings Already Up +16.4%

According to Cushman & Wakefield, vacancy rates for office buildings around the country has already reached +16.4% and is expected to keep climbing.  This is the highest such vacancy rate in approximately a decade

Jonathan Litt, chief investment officer with Land & Buildings, “The pandemic has proven that work from home is viable.  It’s not going away; businesses are going to adjust, and office real estate is going to take it on the chin during that adjustment period.”

Big Employers Nationwide Already Giving Notice

Already, the market value of office towers in our largest metros has plummeted by -25%.

Companies such as JPMorgan Chase, Salesforce, Target, Ford Motor, United Airlines, etc.are subletting half of its respective spaces and giving notice on soon-to-be renewed leases.  Rents are flat, at best, in cities including Boston and Houston and down substantially in San Francisco and New York to $72/square foot from $82/square foot in just one year.

Worldwide, Companies Selling Their Real Estate at Fastest Pace Ever

All types of commercial real estate sales in Europe fell -27% in 2020, according to RealCapital Analytics, and one-third of those corporate sales were office properties.

The pandemic’s forced shift to remote working is causing many businesses across the US, Africa, the Middle East and Europe to reconsider their real estate needs in the future.  Nick Compton, head of corporate capital markets with EMEAat JLL, said that companies are selling their real estate to “preserve capital and release liquidity, as well as to reshape their portfolios to support post-pandemic business plans.

Property Investors in Process of Discovering Global Fallout from COVID Pandemic

The main sources of capital for global investment properties have been pension funds and insurance firms.  Steady income to pay for long-term real estate commitments has, along with rents and securities, taken it on the chin.  This year already, a global index of real estate shares is down more than -10%.

Even companies that mostly rent space in cheaper markets are targeting cuts,  Jan Juchelka, CEO of Komercni Banka As, said, “We want to save 35% of our square meters at the headquarters…” to combine home-working and hot-desking.

Lastly, Mark Harris, CFO with Heidrick & Struggles International Inc., said, “Our real estate strategy is to match the footprint to the new expected normal, which, in many cases, reduces our footprint by 50%.”

No wonder landlords, developers and owners are having trouble sleeping these days.

Thanks to Bloomberg and The New York times.

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