The Return to Work Battle

Covid accelerated the trend of work from home in America. In the name of safety, the percentage of employees working from home jumped to 18%. It was a status thing, not just a covid safety measure. Not everyone enjoyed the flexibility. The interest group hurting now due to this change is a powerful lobbying group, especially in cities, and they are suffering: commercial real estate. This is and will continue to be a fight.

Technology in both employee capabilities and employer surveillance allows for both sides to agree on work from home arrangements. Everyone in that relationship is happier. No productivity loss, some productivity gains, no commutes and happier employees make for a better employment experience. Employers can cut back on overhead by altering the space they rent or eliminating it entirely. Commercial real estate suffers. Vacancies have steadily increased since the pandemic. What has followed is financial strain or bankruptcies for CRE.

They know a crash is in the foggy future. The defaults have begun. Big names are holding garbage and defaulting now, even before a full on recession. As the pandemic has become endemic and most people have changed mindset, return to work efforts have been sluggish. These large office buildings and towers are still only at 45-65% full depending on the city. Suburban office parks that cater to satellite office needs and smaller service firms are ghost towns. Keys are being turned in and pain is present and only going to get worse.

This is important because big players in the FIRE economy are being burned. The other factor is much of the recent renewal in urban areas has been catering to white collar office employers. These employers keep the daytime downtown full of customers for a myriad of hospitality jobs and urban retail. Those workers are not there anymore. Those small food and beverage employers are closing or already gone. Cities lose tax revenue up and down this chain.

This doesn’t even touch on the rising interest rate situation, which makes all the floating debt untenable. Landlords cannot get rate increases to cover for rising interest expenses and to make up for higher vacancies. They need the bodies in the offices.

The pain is widespread and the only beneficiaries are employers who can reduce overhead and employees who enjoy the flexibility. Up against major financial powers and nervous city governments, these happy employees do not stand a chance. There is no work from home advocacy group. There is no union.

Cities & financial firms are going to lean on employers to adopt hybrid models or outright force employees back into the office. Too much investment has been made in rehabilitating urban centers with the knock on residential and economic growth to throw it away for a small slice of employees. Taxing work from home employees can be a lever. Employers adjusting pay for remote employees can be another. The system will chisel at that 18% remote number to get office occupancy rates up to help big money.

While work from home is here to stay, the golden era is likely gone. Additional surveillance layered in the last few years has changed the relationship. Governments and major lobbying groups are hurting. They are organized. Sitting in their pajamas, Jane and Michael type away in their makeshift home offices unaware of the forces angry and moving in on them.