During the pandemic, companies discovered that they could work with almost all employees outside the office
new York- With the office vacancy rate reaching its highest level in decades, and as companies abandoning office space and adopting remote work, the real estate industry in many cities in the United States is facing potentially serious threats.
During the pandemic, companies discovered that they could work with almost all workers who were out of the office, and many planned to continue this arrangement in some form. This may hit the large real estate companies that build and own office buildings, and cause a major setback in the construction industry, a sharp drop in office rents, fewer people frequenting restaurants and shops, and the potential danger of a decline in city government and school district taxes.
According to city forecasts released on Wednesday, in just one year, the market value of office buildings in Manhattan, the country’s two largest central business districts, plummeted by 25%, resulting in an estimated $1 billion reduction in property tax revenue.
Companies such as JPMorgan Chase, Ford Motor, Salesforce, Target, etc. are giving up expensive office space, and other companies are also considering doing so. New York City’s largest private-sector employer, JPMorgan Chase CEO Jamie Dimon wrote in a letter to shareholders this week that telecommuting “will greatly reduce our demand for real estate” . He said that for every 100 employees, his bank “may only need 60 seats on average.”
Just as if consumers suddenly reduce their consumption of soda, Coca-Cola’s profits will suffer a huge shock, the owners of office buildings (many of whom are owned by pension funds, insurance companies, individuals and other investors), if many companies are affected, They may be affected. Rent less space. Jonathan Litt, chief investment officer of the real estate investment company Land & Buildings, said: “This epidemic shows that working from home is feasible.” “This will not disappear; companies will have to adjust, and during this adjustment period, office real estate Will encounter difficulties.”
According to data from Cushman & Wakefield, in the past year, the availability of office buildings in urban centers across the country has steadily increased, reaching 16.4%, the highest level in the past decade. Even if the company allows abandonment of office space due to mixed work or completely remote work, even if the vaccine allows some people to return to work, this number may increase further.
So far, homeowners such as Boston Real Estate and SL Green have not suffered huge financial losses. They have survived the past year by charging rents from tenants locked in long-term leases-average office space The lease term is approximately 7 years.
But as the lease is slowly renewed, the landlord may leave dozens of vacant apartments. At the same time, many new office buildings are being built-124 million square feet across the country, enough to accommodate approximately 700,000 workers. These changes may reduce rents, which had reached new highs before the pandemic. Rent helps determine the assessment that forms the basis of the property tax bill.