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A Cloudy Crystal Ball For Commercial Real Estate And Office Space
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A Cloudy Crystal Ball For Commercial Real Estate And Office Space

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As we pass the grim metric of 500,000 deaths due to Covid-19, analysts are grappling with the pandemic’s long term impacts, including its effect on cities and work.  There’s disagreement about the degree of permanent increases in teleworking and homework. But if some office work is shifting permanently to homes, what will that do to commercial and residential real estate?

There’s a lot of battling by anecdote.  Those arguing cities face major permanent losses of office work point to software provider Salesforce CRM -2.2% and its recent announcement that most of its employees can work indefinitely from home, at least part of the time.

How does that relate to commercial real estate?  Well, Salesforce is San Francisco’s biggest private employer, and it is only two years since they moved into the new Salesforce Tower, the city’s tallest building.  And the real estate implications of their new jobs policy?  President and Chief People Officer Brent Hyder said “I don’t believe that we’ll keep every space in every city that we’re in, including San Francisco.”

Some see this as a part of a “much bigger urban workforce shift,” where workers are decoupled permanently from the office.  This type of commentary has persisted since the pandemic began, with some commentators seeing the pandemic causing a possible “mass removal of employees from their traditional workplace.”

But the future isn’t so obvious.  40% of Salesforce’s workers already are in the “flex” category, where they are expected to work in the office only one to three days per week. The company now foresees that rising to 65%.  That’s an increase, but not a sea change in employment. 

And the company still will have large amounts of office space.  In Chicago, Salesforce remains committed as the anchor tenant for a new 60-story tower, and the company is planning major redesigns of existing office space from the traditional “sea of desks.”

Salesforce isn’t alone.  Google GOOG +0.3% is exploring a hybrid home-office model similar to Salesforce.  But the company also is developing a massive campus in downtown San Jose with 7.3 million square feet of office space and 4000 housing units.  And along with Amazon AMZN +0.4%, Facebook, and other growing tech firms, they’ve leased  hundreds of thousands of square feet in Manhattan and are expanding their footprint in other cities.

These expansions come in the face of continuing overall slow returns to office work.  Kastle Systems’ “Back to Work Barometer,” based on entry card swipes in major cities, found an average office occupancy rate of 24.7% in early February, ranging from 35.8% in Houston to 12.8% in San Francisco.  These are slower rates of return than many expected.

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