Why do people say that "return to office" is about raising commercial real estate prices?
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.
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?
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.
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.
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?
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.
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.
Need I remind you that people worked from home for hundreds of thousands of years? In minority of cases they walked a few minutes to their place of work. You are seriously trying to tout a post-industrialisation, post-war phenomenon as something that always worked? Get a grip on man, what are you? A middle level manager, a real estate owner or a car salesman? Or at the very least, ignorant of your history.
I can ask whether meeting with your co workers has anything to with how it’s “always been done”. We can go on and on forever. And this will not make any meaningful contribution to the topic whatsoever. Ok, so I’ll backup a few steps and try to answer all questions asked in this thread.
The original commentor mentioned that working at your employer’s place (mind you this is the original context of ths post) has always been how it’s done amd people advocating for WFH are just a bunch of whiners. My response was that it’s factually untrue and therefore has no bearing in the topic.
Then you argued that physical presence has always been the norm. That’s true (mostly) but it’s also very close to the WFH model. For example you meet the blacksmith and state your requirements, then the blacksmith toils away and does not have contact with the buyer until the work is done and the contract is to be fulfilled. Therefore you asking if they were able to meet other than physically is moot. They didn’t meet at all during the contract. If we were to follow this model for an accountant for example, they would get a task to prepare some financial reports along with raw data, they would work from home until the task is done and then meet the employer with the final report? I said that physical meeting was MOSTLY true because there was instances of contracts being made via mail, especially between kings. The messengers would deliver the message(internet/chat in the modern context?).
Finally you ask what’s cars have anything to do with the discussion. That’s how a lot of people get to their workplace. This is also a modern invention and a lot of people would loose their jobs if they didn’t have access to them. I raised this point to raise that a lot of these problems are modern problems. Cowering behind “that’s how it’s always being done” is not good enough. There were no software engineering jobs, social marketing jobs in the past. How is past norms relevant here? If we are so keen to cling on to the past you’d observe that whatever got the job done was the preferred method. In this current context of inflation, climate change, air pollution and twiddling middle class buying power, why are we forcing people to give up WFH who have that option? Therefore I’m advocating for WFH and believe who force people to come to the office are either ignorant of cold facts or have an ulterior motive.
So I’m asking again, are you for or against WFH and why?
Well it is… And besides that office space is a huge drain on cities… Not only parking infrastructure, but also traffic… You’re really much better off housing people than having more offices
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.
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’.
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
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 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.
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?
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.
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.
I think all answers so far are either wrong, only rationalizations after the fact, or just minor contributors. I’m pretty sure the real main reason to get people back is a feeling of control and superiority.
It’s harder to do something else than work when you’re at the office. So they want to at least be able to look over the shoulder of their employees, which gives them a feeling of being in control.
The other is superiority, how are managers going to feel superior, like their higher status means something, if there is no one there that’s deferring to them? “Wfh superiority” does not feel as real as seeing real people react to your presence in some way.
Achieving high social status is one of the base desires of being human, and it’s being applied to the workplace majorly. Even if technically nothing changes for bosses regarding status with wfh, it still feels like status is lost because the effects are not as visible, which has to be avoided at almost all costs.
This is correct. Real estate prices don’t mean anything to the vast majority of companies since most of them are not in the real estate business and likely even lease their office spaces. It could have a minor impact to the balance sheet if deemed impaired but it doesn’t amount to something that matters in valuation which cares more about P&L, cash flow, and working capital.
Business leaders are human, they don’t know what the fuck is going on, or how to “increase shareholder value”. So for lack of better ideas they can just tell employees to go back to the office.
Basically, if you don’t know how to stop a ship from sinking, you can at least change the curtains on the windows so you look busy on the way down.
They first, make the decision to go back to the office, second, they tell their team to go find reasons to rationalize the decision. There isn’t a nuanced logic to arriving at the conclusion, they make these calls off-hand on gut feelings. The thinking comes in later from the direct reports trying to fill in the logical gaps, even if the decision wasn’t a logical one to begin with.
I’m pretty sure a lot of these reasons you discard are actual reasons that in some way make sense, they’re just not the main ones. Behavior is rarely dictated by just a single reason, it’s always some kind of combination.
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.
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.
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.
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.
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.
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.
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
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