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?
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.
Giant sunk cost fallacy. Plus old school thinking plus desire for control.
Pretty much this. A surprising amount of executives are like"we already paid for it so we should use it" with no regard for the actual bottom line impact of forcing people back to work.
You made an unfortunate investment, don’t make it worse with your boomer corporate ideology
But the other way also exists, my employer is pushing hybrid work with flex desk, so they can do a building renovation without renting one more building.
But indeed before that came on the table many top managers didn’t liked the flexible work. But it was already in place as a concession to thc unions (cheaper than a raise)
Out of all the responses here, this is the only one that takes into account the actual psychological forces motivating the decision-makers.
The CEOs cannot justify their real estate expenses to their boards when employees are not filling those seats, and they likewise are contractually obligated to pay millions, hundreds of millions, or billions of dollars (depending on the company) for years to those lessors or lenders. There is a simpler motivation than “industrywide collusion and conspiracy to profit” - it is the motivation of these individual CEOs to appear competent and intentional despite that boulder they’ve placed around the company’s neck.
It isn’t a cross-company conspiracy. It’s each CEO’s personal but widely-shared motive to avoid embarrassment and their inability to adapt. Whether consciously or not, this is all those CEOs need to look at the “data” selectively and post-hoc rationalize RTO with platitudes like “increased collaboration and productivity” while ignoring the decreased morale, lost productivity from 2 hours of daily commute time, etc. It maintains the status quo that they assumed when committing to their property leases, and resolves any cognitive dissonance in the way most flattering to themselves (at the cost of their employee’s time, mental health, and personal freedom).
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.
Sounds like capitalism running its course
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’.
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 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
Because they’re grasping at straws in their attempt to rule over the working class.
This doesn’t actually answer the question.
Well, it partially does. Things can just have more than one motivation.
JFC, does no one in this thread understand the sunk cost fallacy?
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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.
Unfortunately nearly every job posting I see (software developer in the US) is either in office or hybrid 3 days a week. I wish the in-office era was over but I don’t see that as a reality just yet, at least not for people with less than 10 years of experience
there is a lot of full remote software dev jobs in the US, but they advertise them here in South America and India, for 20% to 50% of what they pay for americans
So maybe they lower lease rates to attract new tenants.
The golden rule of commercial leasing is that you never, ever, reduce the lease cost because the value of the property is calculated directly from lease value. Reduced lease cost is reduced property value. In valuing a commercial property the lack of a tenant is not important.
tenants stuck in higher rate leases start doing the math on penalties for breaking their existing lease vs the new prices.
Generally with a commercial lease your only real options to exit are to find someone to take on your lease. If lease prices have dropped then no one will want to take on your dud lease.
All of this makes CEOs itchy.
Why? Not all CEOs are in the same industry. Why should the CEO of Google give a fuck what the CEO of Boston Properties thinks? Google is just leasing a space from them. You would think the CEO of Google would be happy for an excuse to offload some real estate expenses.
Considering that the Muskrat can apparently be the full time CEO of 3 companies simultaneously you might be surprised.
CEOs think they’re different from us normies, and have a lot in common with other
superstarsCEOs such that their interests seem more shared.It’s complex, for sure, but yes to some extent the “back to office” CEOs care that the commercial property market stays “healthy.”
Muskrat is not the typical CEO.
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.
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.
Funny how they ask us to go to the office but keep building their offices where none of their employees can afford to live
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?
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.
As far as I understand it, there are political interests too. Not just the obvious, ie a city council wanting to see economic movement within the city. Any regular person with a pension likely has money tied up in real estate. Ensuring those pensions maintain value is a concern for governments.
That’s true, but I didn’t go into that because OP didn’t ask.
Here in Aus local council revenue is a function of property value.
Why would the shareholders of a company want them to take on additional unnecessary expenses like leasing office space?
Or rather, why do real estate company shareholders have such ridiculous levels of influence compared to other groups who would logically prefer more wfh?
Because if you move up the ladder far enough, they’re all the same group. Mister X sits at the board for companies a, b and c, but he also has a real estate portfolio. He’s not the one spending the money for these companies to return to office but he has a vested interest in people returning to office in general, so he lobbies for it wherever he can. Simplified example but you get the gist.
That’s really not how it works. In the same industry sure. But not across vastly different industries like tech, legal, government, etc and real estate.
I would suggest you to check out warren buffets portfolio
Warren Buffet is not typical of CEOs. He’s an icon for a reason.
Warren Buffett is not directing resources from his position in one company to enrich himself in another company that he may have large personal holdings. That is one of the few ways shareholders can get around the safety of a corporation and sue a director.
More to the point, the board of directors are going to be extremely interested in the actions of Buffett if they think he is trying to enrich himself at the cost to their company.
Using him as an example that is.
It’s insidious.
It’s not influence as in “let’s have a logical and transparent discussion about wfh vs on premise”.
It’s rumours, back channel favours, manipulating numbers, etcetera.
Bear in mind not all companies are publicly traded. Plenty of closely held companies were started by grand dad and run on rumour and here say.
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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
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 suspect the real estate prices is a fantasy. I suspect the real reason is management addiction to close supervision and their lack of trust.
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.
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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.
In business perception is everything.
Or you can just not use the office. It is very rare that rental agreements require full occupancy.
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.
Why didn’t you just put on a sign on the front saying “we’re still open, here’s our contact info”?
Seems like a really easy problem to fix.
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.
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.
This is the middle management problem. The upper management problem is the cost of a building.
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.
In Australia they are actually hiding the fact its about property value and pretending its to support the small and local businesses in the city, like cafés
The ones that were largely left to fail during COVID?
Won’t someone think of the cappuccinos!?
