One of the key reasons some businesses are scrapping their remote work policies and mandating that employees come back to the office is all about economics and location, location, location.
Translation: Companies in cities like New York and Houston either own their buildings or are stuck in ironclad, long-term leases. Owners and tenants of commercial real estate, and the local businesses employees patronize, are desperate to make downtown active again.
Let’s not kid ourselves. Cutting payroll is a lot easier if fair-to-middling employees refuse to come back to work full-time or won’t agree to working a few days per week on-site. While X (formerly Twitter) may be a bit of an outlier, Elon Musk proved that cutting 90% of a company’s workforce won’t necessarily damage a company’s productivity.
Some cities like Tampa-Saint Petersburg, Florida and Austin, Texas saw an influx of remote workers starting in 2020. Many bought homes in low-tax havens and worked from home during and after the COVID pandemic. Now those cities and others like it are red-hot areas for home sales. Plenty of folks are selling at below-market value due to high interest rates in order to keep their jobs.
Speaking of sinking real estate values …
Every week it seems like a major company is shutting down operations in urban areas. Target, Nike, Nordstrom and Walmart are just some of the latest.
The Kobeissi Letter notes that roughly 18% of all U.S. office space is vacant and more than “$1.5 trillion of commercial real estate debt is coming due by 2025. Most of this debt is held by regional banks and vacant properties struggling to pay the debt.”
Some ghost towns are in worse shape than others. The highest vacancy rates for cities are:
1. San Francisco: 31%
2. Los Angeles: 26%
3. Chicago: 24%
4. Phoenix: 24%
5. Cleveland: 23%
6. Denver: 22%
7. Philadelphia: 19%
8. Boston: 19%
9. Houston: 19%
10. Austin: 19%
11. New York: 17%
12. Dallas: 17%
13. Miami: 16%
14. Detroit: 13%
15. Seattle: 11%
New York’s relatively low ranking is a misnomer. Three of Manhattan’s neighborhoods – south midtown, downtown (which includes Wall Street) and midtown – continued to build more and more offices from late 2019 to today at the same time many businesses and tenants moved out.