We have written off and on about the “RTO [return to office] Wars” and the at times ham-handed efforts by companies to enforce back-to-work orders.
We have also covered the impact, directly and indirectly, that remote work has had on once vibrant big city downtowns. This is relevant to local since so many SMBs depended on downtown office workers to buy everything from sandwiches to dry cleaning.
Earlier this year we were reading estimates that remote work might cause/contribute to an $800 billion reduction in the value of office properties worldwide. That’s close to a trillion in lost value essentially because of workers doing Zoom meetings at home in their PJs. And we aren’t talking about private jets.
The realization that the post-pandemic realignment in how we work was causing a potential commercial real estate Chornobyl was starting to sink in.
It even led to some efforts to incentivize something that had always been largely dismissed as impractical. And that is converting office buildings in whole or part into residential buildings. Despite some significant engineering challenges ( ponder the bathroom situation for a moment), this did make a certain amount of sense. There are too many offices and too few apartments in big cities these days.
Eventually, we tapered off our focus on the downtown decimation and RTO Wars. We just felt there was little else for us to say about it. For the time being at least.
Further Gutting?
Well, now there’s more. Last week we saw a jaw-dropping headline in Forbes that still didn’t surprise us. It read, “Third-tallest tower in Los Angeles sells for 45% less than last purchase price as remote work, interest rates drive down office values”.
OK, so it’s not just remote work’s fault. But still, the workplace realignment is taking a big bite out of property values.
While most big companies that occupy commercial real estate are leasing rather than buying, they still have done their bit to shovel workers back into cubicles. After all, the Mark Zuckerbergs of the world don’t want to pay for office space that isn’t being used. They are probably just glad they don’t also own the buildings. Unless of course, they do.
Is RTO Dead?
We also read something last week suggesting the pendulum may be swinging back toward permanent remote work. The pendulum hasn’t exactly been still. We seem constantly to be reading contradictory takes on whether the bosses or the pajama-clad are winning the RTO Wars.
For example, according to a report in Yahoo News, Stanford economics professor Nick Bloom recently told CNBC that the U.S. economy is “stuck” with remote work, which suggests the office market crash may be unavoidable if we are not already in the thick of it. And the half-price sale of a leading LA office tower may be all the evidence we need.
He said RTO efforts fell flat in 2023 and “return to the office is dead.”
The Yahoo piece further notes that occupancy rates in the top 10 office markets are hovering at around 50%. That is anemic, to put it kindly.
