Empty Offices and higher interest rates equal a debt storm brewing.
Throughout the Western world during lockdowns workers were compelled into working from home. Everyone got used to conducting meetings over Zoom. Workers got used to not having to battle the commute as well as getting extra time to be spent in bed. Bosses learnt that their workers were just as productive and that the vast majority didn’t spend all their time playing computer games whilst pretending to work.
Now the lockdowns are over but the trend to homeworking has stayed with us. Despite the extra costs of electricity, though minus the costs of travelling, workers are not rushing back to the office. On the con side is that workers have less time to socialise with their colleagues on the plus side there’s no annoying colleagues who are keeping you from getting on with your work!
The Wall Street Journal recently reported that the proportion of office workers returning has risen to it’s highest since February 2020. Nonetheless it still averages as 50% less because it is only for some days of the week. It peaks during midweek but crashes on Mondays and Fridays.
According to RICS in the UK only 12% of working age adults reported working from home at some point during the week and only 6% were fully home based in 2019. Now three years on from the plandemic 71% now work some time from home, while 27% work entirely from home.
Survey evidence shows a strong majority of employees would prefer to keep to a hybrid working pattern for the long term. Some companies have tried to request staff move back to the office, such as Apple, X, JP Morgan and Goldman Sachs amongst others. However, the trend for home working has persisted.
Office attendance has likewise been affected by increased sickness, a lot of which is down to Covid, Long Covid and vaccine injuries, The US Bureau for Statistics reveals that (for 16 and over) the numbers with a disability went up 87,000 in September very close to the all time high reached back in June.
From Ed Dowd's Telegram Channel
With Covid currently doing the rounds again any reintroduction of mask mandates and social distancing will likely further increase the trend for homeworking.
The decline in office space requirements in hitting landlords at the same time recession is raising it’s head. Bankruptcies lead to more empty buildings. Landlords can only give rent free leases for so long. Expectations this was only a temporary trend, just like the raising of interest rates, has hit medium term planning.
In Germany one in 10 businesses plan to cut their office requirements. One in four office workers now work remotely. In Q2 of 2023 investment in the country’s commercial real estate plummeted 63%.
The number of distressed office building loans is a silent crisis in the making. In February Brookfield Corp, one of the world’s largest private equity firms, chose to default on two LA office towers to the tune of $755 million in loans.
Prices for office buildings in the US could fall by as much as another 35 percent by 2026, Capital Economics has warned. A report by real estate firm Cushman & Wakefield has said that in the US about 330 million square feet will fall vacant because of the new work pattern;
Obsolescence is the word of the day right now.
Further saying that;
Friday [in the office] is dead forever and Monday is touch and go.
$1.5 trillion in commercial real estate debt is due to mature in the States in the next two years. The bulk of these IOUs are held by small and regional banks, which have tightened their lending standards. According to Business Insider these factors mean a debt storm is brewing for owners of commercial property.
Looking ahead CBD (central business districts) can find themselves hollowed out. A reduction in the small bhsiness supplying office workers such as newsagents, sandwich shops, cafes and restaurant could all feel the impact. Taken in total this may well lead to an increase in crime; such as vandalism and vagrancy. This sets into a slow downward spiral, especially with the abandonment of older office buildings that require significant investment to bring them up to the latest sustainability requirements.
The main group finding home working more impactful are Gen Z. They miss the social aspect of the office. They are less likely as a result to be involved in a union. Also they have a higher incidence of still living at home with their parents, creating difficulty finding room to work. It’s no fun having to work and live out of one of your parent’s bedrooms.
