Why do people say that "return to office" is about raising commercial real estate prices?
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.
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.
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.
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.
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.
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
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.
It's simple: the board and major shareholders also invest in office properties and trying to reduce loss of their investments.
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.
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 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.
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.
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
It's simple supply and demand. If lots of white collar workers are WFH, then hiring new people doesn't require more office space. If you can grow your company without leasing office space, or by leasing a smaller office, demand for office space goes down.
Office space owners who use that for income suddenly don't have (as much) income. So maybe they lower lease rates to attract new tenants. Well, now tenants stuck in higher rate leases start doing the math on penalties for breaking their existing lease vs the new prices.
If remote work stays popular or grows (hint: it's growing), this CAN result in a race to the bottom on commercial real estate leases, which makes them less valuable investments, which could lead to a massive sell off.
All of this makes CEOs itchy. So they try to justify return to office policies. This just chases their best people into the arms of competitors who will support WFH (and naive pay more without high office space leases to pay).
I think the era of regular office work for white collar workers is over. Maybe a couple days a week for client meetings. But why not just go to the client site?
Office work was killed by COVID. Good riddance.
JFC, does no one in this thread understand the sunk cost fallacy?
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.
"While I pay you. I own you."
"I don't trust you to be professional"
Commercial real estate value.
My firm COULDN'T WAIT to get back to 1961. I tried for 6 months, then I left the position and the field .... fuck 'em.
It doesn't. It is a bit of a silly argument and not a factor in any real degree. There are valid arguments for work from home but this is not one of them. Quite the opposite actually.
Employers don't give a shit about the real estate market. Employers would be thrilled not to have to pay for utility and other maintenance costs on their buildings, if they thought working from home was superior or even a wash. They would love to push facilities costs onto their employees.
People don't want to go to work and they work backwards to think of all sorts of reasons it's somehow a corrupt idea, rather than admit they're just being whiny about the way the world has always worked.