Read for 5 minutes (Reuters) – NEW YORK (Reuters) – As the US economy recovers, increased corporate expenditure on video systems and plans to expand shared workspace signal that hybrid work is here to stay, potentially putting downward pressure on commercial real estate prices in New York, San Francisco, and other big cities. Downtown San Francisco is viewed from California Street on Day One of the citywide shelter-in-place order in response to the coronavirus illness (COVID-19) epidemic, in San Francisco, California, United States, March 17, 2020. PHOTO: STEPHEN LAM/REUTERS Sales of technology for allowing remote work have continued to rise in the aftermath of the pandemic. According to market research firm NPD Group, retail sales of USB cameras and computer microphones increased 77 percent and 36 percent respectively from March to May compared to the same months last year, after doubling in 2019. Logitech International SA, a computer goods company, projected earlier this year that sales of webcams and cloud-based video collaboration equipment would continue to grow in 2021, after tripling to $1.48 billion from a year earlier. In addition, according to a Morgan Stanley poll, the majority of corporations expect to boost shared workspace as a way to save money on real estate. “Many executives would like everyone back, but technology expenditure plans show they appreciate the need for a flexible office,” said Vikram Malhotra, a Morgan Stanley real estate analyst. In locations like New York and San Francisco, where there have been few big-name office building sales in recent months, the emergence of the hybrid office provides a headwind to workspace demand. According to LaSalle Investment Management, institutional office asset holdings in the two cities are worth $231 billion and $128 billion, respectively. While leasing activity has increased since the pandemic’s lows, rental prices are still low and vacancy rates are high, lowering the value of office buildings and stifling dealmaking. According to Cushman & Wakefield Plc, total sales of office properties in Manhattan fell by more than half last year to $5.4 billion, and were only $41.9 million in the first quarter of 2021. According to Malhotra, the work-from-home trend would erode landlords’ lease pricing power and the returns investors expect from office assets. According to the bank, the modifications will result in a 13 percent reduction in office space in the United States. In June, Green Street, a real estate advice business, predicted that remote work will have a 15% negative impact on office demand. “Those large global gateway cities – New York, San Francisco – they’re the poster kid, they’re soft,” said Mark Zandi, Moody’s Analytics’ chief economist. CHANGES THAT ARE SPEEDED UP Many companies are planning to enable at least some remote work, like Swiss bank UBS Group, which unveiled plans for a mainly hybrid workforce earlier this week. Goldman Sachs Group Inc and Morgan Stanley, for example, have avoided adopting a hybrid workplace. According to Tracy Platt, Cerner Corp’s senior human resources officer, 75 percent of the company’s 27,00 employees could be “dynamic” and work half of their time remotely. “We want to achieve the best of both worlds,” she said, “and we’re convinced that we can do so with this strategy.” Not everyone thinks hybrid work would reduce workplaces or lose its attraction over time. According to Alex Goldfarb, an analyst at Piper Sandler, most employees would likely work three- to four-day weeks, making space consolidation more difficult. At the same time, “they want to feel like they’re a part of the game,” he said, adding that “there isn’t a game out there that you can win if you’re not on the field.” Nonetheless, the pandemic has hastened improvements that had been in the works for some time. Before the pandemic, Vocon, an architecture firm, created offices with 20% of employees using so-called hot desks, where numerous workers utilize a single physical workstation at various times. According to Vocon, some companies are now designating more than 40% of their space to what can be shared. “Is it reasonable to expect people to attend a specific site every day? It didn’t make sense in certain circumstances before the epidemic, “Deb Donley, owner and principal of Vocon, agreed. According to LaSalle experts, demand for office space does not have to collapse in order to have a negative influence on occupancy, rates, and values. According to Jones Lang LaSalle Inc’s unit, a 5% to 10% decline in demand could lead to higher vacancy rates and postpone the sector’s recovery by five to ten years. Since even before the pandemic, LaSalle has underweighted its exposure to office buildings, according to Rich Kleinman, LaSalle’s co-chief investment officer for the Americas. “Many people have underestimated the amount of capital required to own an office complex over the long term,” Kleinman remarked. “It’s not as appealing as some other property kinds in terms of risk-reward.” Herbert Lash contributed reporting from New York, while Megan Davies, Ira Iosebashvili, and Matthew Lewis edited the piece./n
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