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- cross-posted to:
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Office mandates don’t help companies make more money, study finds::Three years after the coronavirus pandemic sent people to work from home in record numbers, U.S. employers are still struggling to get people back to the office.
It’s about “butts in seats” people.
Big tech companies OWN not rent.
When you OWN an office building, and it is empty, you are LOSING MONEY.
It’s about the real estate, nothing else. Open your eyes
How? How are they losing money not having people in the office? Where is this money coming from?
Explain your reasoning.
I disagree that property value is the main driving force behind return to office mandates, but if they do in fact own their offices, then those offices depreciate in value. They also cost money in upkeep. Gardeners, janitors, window cleaners, security, power, maintenance, insurance. Even if nothing is happening, there are contracts with companies that provide these services. Either they’d have an agreed frequency of visits, or a retainer fee. They have managers that want their employees to make on site visits to justify their jobs. The AC and lights would need to be on for anyone onsite, including security, and that is a lot of power. Offices are expensive.
If nothing is getting done in those offices, then those offices are bleeding money. And if they’re empty and nobody wants to work (in an office) anymore, then you can’t sell them for anything like their old book value. It’s a huge loss.
That said, I suspect it’s more institutional inertia that drives most of this return to office stuff. Managers justifying their existence or just not being able to cope with the new skills they need. Plus selling or ending leases is a job that someone has to do, and you might fuck that up, so you’d rather not make the change. Plus they’ve got the offices now, what if they need them soon? Capitalist companies, especially corporations, are fundamentally conservative entities.
If you buy a car and don’t use it, you’re in much the same situation. You have an expensive thing gaining you no value. At worst that money could be in your savings. I imagine a company could find more productive uses for that capital. (A decent chunk of capital mind you, Google paid about 10% of its annual profit for a pair of offices in 2018.)
Sure, you could sell the car but you’re going to take a loss as office vacancy rates are at what I assume are historic highs (in Canada it’s about 17%).
The more conspiratorial minded may also point out that most CEO level folks or board members are pretty likely to have a lot of their wealth tied into the market, a not insubstantial sum of which is tied to corporate real estate. A significant disruption there could cost those folks and their friends heavily. It’s a little conspiracy minded for me but also not so much so that it feels ludicrous.
Google’s costs go down if they own the building but don’t have to pay for cleaning, lights, toilet paper, paper cups, heating and AC to human comfort, etc. An empty building costs less than a building with people.
Yes, but the costs of those things are mostly fixed. If, say, 20% of the workforce goes into the office because they enjoy working there, then you pay the full cost of cleaning, lights, toilet paper, paper cups, and heating and AC for the entire building, even though it’s not at capacity.
Source: My company is hybrid, but a handful of people decide to go in every day, including three people from my team.
Even if you are correct, then at best, this bullshit “real estate” angle is cost neutral. If it’s cost neutral, how is it a factor in valuation?
It’s “cost neutral” in the sense that the company still pays the same $X to run the office regardless of how many people are in the office. But if it costs $1000/day to heat your office in the winter and only 50% of your employees are working in the office any given day, you’re wasting $500 worth of heating that day.
Looking at it from an overhead perspective, let’s say I have 1000 employees and my heat costs $1000/day. When all my employees are in, it costs $1/employee/day to heat my office. If only half my employees are in, it costs me $2/employee/day. My overhead per employee just doubled.
That’s the unintuitive part. An empty building still needs some basic maintenance, and the financial difference is almost immaterial. Else the building just falls into disrepair and crumbles. The cost of conditioning a building for human use after dereliction is way larger than the cost of keeping it maintained, but the cost of maintenance between empty and full is almost the same. You can keep the AC off, you’re saving that electricity, but you still have to pay for the technician to go there and make sure it is still working, same with elevators, water lines and electric networks. Those things still deteriorate even if not being used. Some things can be mothballed, some can’t.
If some things can be mothballed, then costs go down. Right? Not to even consider the waste of capital that is commuting.
Yes, but not as much as one would think.
I missed your response, my bad, but I think others have touched on the major point with some pretty good analogies, but I will give you a full response since is a valid question. DISCLAIMER: I am a Software Engineer, not a real estate expert, although I was raised by a real estate expert.
Imagine you are Apple and own “Apple Park” in Cupertino, California.
Apple does not own the property “out-right”, they have a mortgage on the property and buildings similar to the average home mortgage, but much more expensive. When you “own” the mortgage, it is up to you who occupies the building, which often is done by contract. When you “own” a building for the purpose of giving your own employees a place to work, you often enter in a contract with “yourself”, but most often as a “subsidiary” signing a contract with a “parent company”.
Let’s say that a subsidiary is “renting” the entire building, but also, 90% employees work remotely. Although you, as the subsidiary, are still “paying rent to” the parent company, you as a subsidiary are losing money by paying for an office space that is mainly unused. So sure, it could be said that the parent company “isn’t losing money”, however, the subsidiary is since the office is unused and still being paid for. The subsidiary can’t just stop renting the office, since they are in a legal agreement with the parent company. This pushes parent companies to enact “return to office policies” so that subsidiaries are paying rent on “required office space”. Having “butt’s in seats” also helps with maintaining building value as one can prove “hey look, my office building is in demand”, even if simply artificial demand through subsidiaries.
Most office buildings, especially if for tech, cost in the hundreds of millions depending on location. If you think tech companies buy them outright rather than mortgage them with the company and assets as collateral, that is incorrect.
In other words… If you have a mortgage on an office building with no one in it, the “market” looks negatively upon that, which brings the building’s value down, but not your mortgage payment and interest. Therefore, you are paying more on your mortgage than the value of the building. Similar to buying a car with a car loan, using the crap out of it, and then not touching it for 5 years and expecting it to increase in value. (Car is a bad comparison as 99% of them lose value the second they leave the lot, but is easiest to compare)