76% Of US CEOs Will Slash Office Space As Remote Work Dominates: A move that could ripple through Commercial Real Estate markets

The virus pandemic has accelerated more flexible work options for employees, with many companies instructing employees to work remotely through 2021, or in some cases, permanently. As a result, according to a new survey, CEOs have said they will slash office space, a move that could ripple through commercial real estate markets, all the way down into local economies.

In collaboration with Deloitte, Fortune surveyed 171 CEOs between Sept. 23 to 30, found 76% of respondents are expected to reduce office space size in the near term. About 28% of them said they would need "a lot less" corporate space.

The survey is an eye-opener for all the empty office buildings in major metro areas as remote work continues to dominate. The prolonged economic downturn and persistent virus pandemic are whipping up a perfect storm where companies must reduce their corporate footprint.

Remote working, continued virus pandemic, social unrest, and a surge in violent crime have contributed to a mass exodus of city dwellers who have escaped to suburbia. Among CEOs surveyed, 40% said remote working has increased productivity. Inversely, 31% of CEOs said remote working decreased productivity.

Corporate America scaling back on office space will continue to pressure certain CMBS tranches that are heavily weighted with office buildings, suggesting as remote working continues, for at least the next 6 to 12 months, building operators could experience slumping rental income, resulting in missed mortgage payments and could send deliquesces soaring.

CMBS Deliquesces Remain Elevated

The scale-back of corporate space because of remote working will also damage local economies that surround business districts. This will be a mass hit to gas stations, restaurants, and other shops, who depend on commuters, will see less and less traffic for the next few years. In July, we noted remote working would remove some 14 million cars from American highways.

The bad news here is that a commercial real estate crisis looms.

This guy is totally off when he doesn’t think gas stations are making more money than ever

they are go to place for everybody who’s in a car and they’re building a giant markets at every gas station

witness the loop trend with shell for example

where they’re building $250-$500,000 mini stores inand Mini Mart

Salad bad every kind of juice or adult beverage that you could possibly want

What gets me is the protein bar/fruit and nut and seed combo

that’s my go to thing

And a kombucha

This kind of disruption is interesting. I'm frequently a contrarian and as a conservative like to stick with things that work, but I am also big on effective use of technology - emphasis on 'effective'. Over the past 15 or 20 years I have loathed the office environment. Not so much that it isn't effective, but because of PC bull crap.

There is an opening here for companies that want to be more productive and have happier employees. Use tech for flex - give people flexibility to work at home, but build a culture where people want to work together in person. Humans are social creatures. They thrive in environments where they can be themselves with others. That is what has been lacking in corporate culture for the last 20+ years.

I expect commercial real estate values to plumit. Right now, a lot restaurants and small shops are the walking dead, and will not survive through the spring. Add to that the trend in telecommuting via Zoom, and the popularity of virtual office space, with a mail drop and a conference room as needed, and there is going to be a huge inventory of unrented, unused commercial space next year. Investors know this and are simply waiting for the bottom of the market, further depressing current values. Making it worse for the moment is uncertainty over whether Biden will win and the Democrats will bring back high capital gains taxes.

“Productivity will decline.”

No doubt. There will be claims that people will work even more because they don’t have to commute. But most people will use that for more personal time at home. We know about human nature.

There was already a move for years among companies to reduce office space. Ironically it was to support increased “collaboration”. They were getting rid of offices and “walls” and placing more workers out on the common floor rubbing elbows with each other so there was more “collaboration”. However most of those people were on unrelated video and audio conference calls. Offices have turned into call centers with unbearable noisy conferences.

Now with covid-19 and whatever comes next — son of covid-19 - the idea of “dog runs” and mosh pits on the common floor seem foolish. The offices were safer for the employees.

But I doubt they change direction. Many will work from home and those in the office - they will say everyone wears masks and they check your temp when you come in to work and all is well. :-)

I was lucky when I retired I still had an office. Many of my coworkers were not so lucky.

Lots of changes coming with respect to remote living - it took CoVid to crystallize the whole supercooled environment, but it was probably inevitable at some point. Brick and mortar stores are already going the way of dinosaurs in the tar pits, and quite a number of observers have noted the same thing is happening to brick and mortar university campuses, much to the financial benefit of the student and the financial woe of the academic elite. Add office spaces to that and you begin to suspect that Marshall McLuhan’s “electronic cottage” now looms some forty years after his death.

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