this post was submitted on 15 Oct 2023
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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?

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[–] [email protected] 128 points 1 year ago (1 children)

It benefits the owners of commercial real estate. Which is primarily banks and investment firms.

Companies need to stay on the good side of banks and investment firms. Otherwise they don't get loans.

But also, some of these companies own those buildings. If they're not in use, their value in the market drops.

Also, there's external pressure from cities and townships who give tax incentives to companies to bring their employees in to spend money in the city. For example, a company might get a tax break if they create a thousand jobs. That's only a good deal for the city if those thousand people are in the city and spending their money and generating taxes.

[–] [email protected] 25 points 1 year ago (4 children)

I see, so the idea is that they're responding to external pressure from governments and financial institutions? I guess I could see that, though it shouldn't be hard to prove by pointing to specific policies and loan conditions.

But also, some of these companies own those buildings. If they’re not in use, their value in the market drops.

How does that work? Why would a buyer care if the seller was using the building? If anything, I would think using them would depreciate their value due to wear and tear.

[–] [email protected] 43 points 1 year ago (5 children)

If nobody is using any buildings then there's an indefinety supply and no demand.

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[–] [email protected] 18 points 1 year ago (1 children)

A big thing in my country, business buildings are expensive because of location and what's around them. But if employees aren't in the office, restaurants, cafes public transport corner shops etc lower in demand or even close entirely. This makes the building itself less in demand and harder to rent out at a higher price.

A lot of these buildings are owned by banks, CEO's and financial institutions who have the money to push for changes like government to make people come into office and can use any reason like "think of all the failing cafes!".

[–] [email protected] 7 points 1 year ago (1 children)

Ah, hm... I guess that makes sense. Bringing people to the office raises the value of surrounding retail, which in turn raises the value of the office. Thanks, that explanation clears it up.

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[–] [email protected] 14 points 1 year ago

WFH makes it so there isn't a buyer or very few interested.

So if you want to shift the property, you're going to have a bad time.

[–] [email protected] 8 points 1 year ago

A buyer is only interested if they have a use for the building. If work from home becomes the default way, then who would need to buy an office building?

[–] [email protected] 68 points 1 year ago (2 children)

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.

[–] [email protected] 27 points 1 year ago (2 children)

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'.

[–] [email protected] 8 points 1 year ago

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.

[–] [email protected] 6 points 1 year ago

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

[–] [email protected] 6 points 1 year ago

Sounds like capitalism running its course

[–] [email protected] 52 points 1 year ago

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.

[–] [email protected] 50 points 1 year ago* (last edited 1 year ago) (3 children)

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.

[–] [email protected] 27 points 1 year ago (1 children)

Giant sunk cost fallacy. Plus old school thinking plus desire for control.

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[–] [email protected] 40 points 1 year ago (2 children)

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.

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[–] [email protected] 40 points 1 year ago (5 children)

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.

[–] [email protected] 32 points 1 year ago (1 children)

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

[–] [email protected] 14 points 1 year ago (1 children)

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.

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[–] [email protected] 28 points 1 year ago (7 children)

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

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[–] [email protected] 36 points 1 year ago (2 children)

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.

[–] [email protected] 12 points 1 year ago (3 children)

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?

[–] [email protected] 27 points 1 year ago (9 children)

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.

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[–] [email protected] 8 points 1 year ago (1 children)

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.

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[–] [email protected] 26 points 1 year ago (1 children)

Idk how much of this is true but I had read that in certain cases the companies got what is called sweetheart deals from cities for establishing their office in that city, what the city wants from these companies is tax paying citizens and usage of city businesses, again to create more tax paying citizens.

Now wfh means employees can move to a city which is cheaper for them or far away from the city for a more rural lifestyle (not exactly rural in many cases), so cities are unhappy and are ready to charge businesses for that and so businesses are trying to call back employees to keep their deals going

[–] [email protected] 6 points 1 year ago

This certainly is part of it. I worked for a company that got huge tax breaks because they promised to hire x number of employees. Then they put in a hiring freeze and the city had to fight them for the taxes they now owed.
This was long before the pandemic but I'm sure this happened a lot

[–] [email protected] 25 points 1 year ago (2 children)

Big businesses often get incentives from municipalities for being headquartered there. The city wants employees in offices who might financially support other local businesses while they commute to/from work.

If the local economy is happy and office space remains in demand, coupled with savings they receive from incentives, property values rise. The property of a business is an asset, so the more valuable the property becomes, the more value the company owns.

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[–] [email protected] 24 points 1 year ago

It's simple: the board and major shareholders also invest in office properties and trying to reduce loss of their investments.

[–] [email protected] 23 points 1 year ago

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.

[–] [email protected] 23 points 1 year ago (1 children)

Ok I'll try to explain it. Imagine before if your company had 100 people and they all needed offices so you rent a place that has 100 offices.

Now you switch to work from home and let's say only 20 people really need office space since the other 80 can just work from home.

Why would you continue to rent the building with 100 offices? You wouldn't. Instead you find a place with maybe 30 max. And you're not the only company doing this too.

So now nobody really wants or needs huge office spaces and the people who own these have trouble finding new tenants, demand isn't very high so they'll have to lower prices. That's what people refer to, since the value of these buildings is partially based on the income they can produce. If that goes down then so does the overall value of the building.

It doesn't hurt the employer unless they themselves just spent A TON of money building their own huge building. Then it would be mostly empty and a huge waste of money so it would look bad.

[–] [email protected] 21 points 1 year ago

In addition to that companies make deals with cities for tax breaks based on the number of just they create in each location. Usually there is a rule about how many people need to be working in your offices.

I also heard a city mayor on NPR recently talking about how we need to get workers back down town because the smaller businesses like restaurants are doing poorly in those areas now as well. So I assume they are putting pressure on these companies as well. Instead of finding a new more innovative use for the spaces.

[–] [email protected] 16 points 1 year ago

I think it's because there just isn't any sensible explanation so people are trying to come up with something.

The tech companies do have massive real estate footprints, but I think it doesn't make sense at all, those are a cost center for them.

[–] [email protected] 15 points 1 year ago* (last edited 1 year ago) (1 children)

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

[–] [email protected] 11 points 1 year ago (1 children)

The ones that were largely left to fail during COVID?

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[–] [email protected] 13 points 1 year ago* (last edited 1 year ago)

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.

[–] [email protected] 11 points 1 year ago

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

[–] [email protected] 7 points 1 year ago (6 children)

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.

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[–] [email protected] 7 points 1 year ago* (last edited 1 year ago)

JFC, does no one in this thread understand the sunk cost fallacy?

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