Office Sector Next Shoe to Drop After Retail?

Armhoo1's picture
Rank: King Kong | 1,585

Have long thought this. With everything going on, people are working from home, videoconferencing, and being productive remotely. So my theory is being validated. Millennials and younger prioritize flexibility. Office space can be costly and gets outdated every 10 years or so. As a matter of fact, companies looking for cheap and/or quality talent would benefit from a regional/national/global work force, which goes against sprawling office campuses. WeWork blew up (in good and bad ways), but the business model can work. It seems to be working for small players.

Some companies (especially tech) report higher employee retention, satisfaction, and productivity. Dell is a good example. Saves a ton of money and is cheaper to recruit personnel. Such flexibility could be good for the economy and may provide opportunities for lower income people.

Time to short office REITs?

Comments (41)

Mar 17, 2020

This has been a fear amongst some of my peers - that as a result of this crisis, a lot of companies are going to realize that working from home is way more attainable than they realized and they're leasing more office space than they need.

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Mar 17, 2020

Generally agree but I feel this trend will more acutely affect B / C product. Tenants in well located, amenitized office buildings are no strangers to remote work. In the last 3-5 years landlords / users have been heavily focused on creating work spaces that make the office a more appealing place to work than your couch.

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Mar 18, 2020

Well that's just like retail trying to make the experience more "personal" to distinguish itself from digital.

Transition is on-going, inconvenient, and uncertain. Yikes.

Mar 18, 2020

Well that's just like retail trying to make the experience more "personal" to distinguish itself from digital.

Transition is on-going, inconvenient, and uncertain. Yikes.

B/C products are mostly your independent lawyers, doctors, accountants, etc. In other words, professionals that need space to conduct business. And their rent/lease obligations aren't usually too burdensome. But obviously you won't find any investment grade tenants in B/C properties.

Most Helpful
Mar 18, 2020
Armhoo1:

Well that's just like retail trying to make the experience more "personal" to distinguish itself from digital.

Which has worked, for the record. Good retail hasn't died at all.

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Mar 17, 2020

I think we're heading to some blend between remote and in office.

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Mar 18, 2020
Champagne Sipping:

I think we're heading to some blend between remote and in office.

Without a doubt.

For a lot of companies, that blend already exists and is highly effective.

Mar 18, 2020

How that effects office even more, idk

Office vacancies have only been going up iirc

Mar 17, 2020

Office will be hit twofold: (i) companies go under / downsize due COVID-19 and (ii) companies downsize space out of choice due to realizing they need less space because more people will work from home. Ultimately, all of this will drive for lower demand in office space across all major metros.

Robert Clayton Dean: What is happening?
Brill: I blew up the building.
Robert Clayton Dean: Why?
Brill: Because you made a phone call.

Mar 18, 2020

Agreed - but also in the sector so I may be viewing through rose colored glasses. I think the average worker will be a lot less productive from home and the social benefits for a lot of people in the office is understated. However, some of our smaller tenants going under/downsizing is certainly a concern.

Mar 18, 2020

In the office space so maybe a little biased - but this last couple of weeks have really reinforced the benefits of having an office to go to. So many screaming children and barking dogs on the other side of conference calls, and I personally feel like a bit of a piece when I'm still working in my gym shorts at 5 oclock in the afternoon. I don't think that technology is the impediment that is keeping us attached to our offices.

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Mar 18, 2020

No doubt, but my opinion is that space will be dramatically reduced. Companies that can afford it will have one flagship office building. Everywhere else will be modest shared space that employees can access. Most employees would likely work remotely at least once or twice a week if not more anyway.

If you really need to work away from home regularly, I see people at Starbucks for hours at a time. Or you can get your own office "suite", which can be slightly pricey.

Mar 18, 2020

Industrial servers will continue to perform. Tons of SWE jobs posted as the WFH infrastructure ramps up. I think we will see more WFH moving forward (pre COVID-19), but not the levels they exist right now. Netflix posted quite a few jobs in a 24 hour period

"The three most harmful addictions are heroin, carbohydrates, and a monthly salary." - Nassim Taleb

Mar 18, 2020

I think we're all really underestimating how bad the wfh productivity numbers are going to be.

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  • Associate 1 in RE - Comm
Mar 18, 2020

This. Does no one remember the whole Yahoo experiment?

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Mar 18, 2020

Agreed. Seems like many people working from home this week are celebrating the fact that they returned an email same day and calling it a win. Won't be tenable for most industries when the economy ramps back up (and companies that say they were already doing it and achieving max productivity are lying to themselves).

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Funniest
Mar 18, 2020

i've been unproductive af these past two days

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Mar 18, 2020

Not exactly a huge office space, but to your point: if this WFH situation isn't a fiasco, it would be odd if things reverted after everything stabilized.

NYSE to shift fully to e-trading from Monday after two coronavirus cases

March 18 (Reuters) - The New York Stock Exchange (NYSE) will temporarily close its trading floors and move fully to electronic trading from Monday, its owner Intercontinental Exchange Inc said after an employee and a trader were tested positive for the coronavirus.

...

"Our markets are fully capable of operating in an all-electronic fashion...and we will proceed in that manner until we can re-open our trading floors to our members," NYSE President Stacey Cunningham said in a statement.

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Mar 19, 2020

I might be a little biased but does anyone else see this killing off co-working environments and making employers think twice about overcrowding offices? Maybe some users will demand more SF per employee.

Mar 19, 2020

I fucking hope not need to sign this deal with Spaces/Industrious

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Mar 19, 2020

Eh. How would working in a co-working space in this crisis, or a different pandemic, be any different than working in a traditional office?

As far as SF/employee, I wonder what impact this will have on work from home policies. On one hand, the flexibility is awesome and definitely helpful. On the other, I can't imagine productivity being as high as in an office setting. I wonder if thoughts on remote working will swing one way or another, or if it'll go one way for some companies and the complete opposite for others.

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Mar 19, 2020

Less people within breathing/sneezing/coughing distance of one another. I'd also think physical barriers are helpful in reducing transmission.

I'm not saying the amount of extra SF required to have a meaningful impact on transmission rates would be economical or feasible. But I do think there will be a new found love for private offices among execs. That ~10-15% extra SF per employee might do very little to reduce transmission rates but it may buy some false peace of mind.

Mar 23, 2020
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