Power Reads: 5 Interesting Articles That Will Help You This Week

Each week, I select a few articles that rise above the fray and hopefully help you on your journey in leadership and the CRE world. They pull from one of four "corners": corporate real estate, technology, management science and anything positive. Each day we can become a better version of ourselves.

1. Finding Answers To The Future Of Remote And Office Work

I work as an office tenant representative broker. Yes, I make my living when people lease office space. Lately, people have had sympathy in their voices as they delicately ask, “How is your business?” The next question is usually, “What do you think the future of the office will be?”

The answer to the first question is that business is way down as we make our way through the fourth quarter of 2020. Executives have a fear of (long-term) commitments. I'm witnessing companies signing short-term renewals when they can and dumping space via sublease or lease buyouts at a frantic pace. Executives are wisely making the smallest decision possible with all the uncertainty afoot. I don’t blame them a bit – they need to be wise stewards of corporate resources. My job is a little lonely just now.

But what about the second question, regarding the future of the office?

One way to look at a problem is to look at the opposite reality and conceptualize the issue from a reverse approach. In this case, this means looking at the opposing reality of everyone in the world will work from home forever.

2. The Future of Offices When Workers Have a Choice

Coronavirus will not kill the office. If anything, it figures to be more dynamic than ever. The ability to work remotely will not drive most people away from cities and offices, but it will enable many to live and work in new ways and places — while causing its fair share of disruption.

Even before the pandemic, there were signs of trouble with the office market in the handful of cities where the “creative class” had been flocking. In 2018, net migration to New York, Los Angeles and San Francisco was negative, while the U.S. economy grew at a healthy 2.9 percent. Creative magnets like London and Paris were experiencing similar declines.

The explanation for the declines — mostly high housing costs because of severe limits on new construction — obscures other forces that were destabilizing the traditional office market. In the middle of the 2010s, Amazon, Facebook, Google, Apple and others started splitting their headquarters into multiple locations.

3. Office Landlords Will Be Squeezed by Secondhand Market

Scratch the surface though and these markets are becoming tougher for landlords. Few businesses will commit to a new lease until they understand how remote working will change their real estate needs, so competition for tenants is intensifying. Any company that is willing to sign a 10-year lease in central London today can get up to 28 months rent-free, compared with the 24 months on offer before the pandemic.

Landlords’ next challenge will come from tenants that are beginning to unload space they no longer want. Although companies cannot break leases without reputational damage, they are able to sublease all or part of their offices—an option that both Twitter and Airbnb have used recently.

Rents typically begin to fall when this secondhand supply reaches 30% of total office vacancy, according to property experts at Green Street. Sublet offices are offered at a discount, pressuring landlords to slash rents in the primary market. Subleasing activity is already at this 30% threshold in San Francisco, numbers cited by Green Street show, while tenant-controlled space on offer in Austin, Texas, and Seattle is more than double the rate both cities recorded at the peak of the global financial crisis. So-called grey space is approaching one-fifth of vacant supply in Manhattan.

4. 2020 Was The Manhattan Office Market's Worst Year This Century

Manhattan saw its slowest year for leasing since the start of the 21st century, with just 20.5M SF leased in all of 2020, according to Savills. While some hold out hope that the widespread distribution of the COVID-19 vaccine will usher in a recovery in 2021, what that will look like is still largely uncertain.

“We feel like we are limping off stage,” SquareFoot President Michael Colacino said. "That’s how [2020] feels to me."

While leasing volume increased nearly 50% between Q2 and Q3, it took a hit in the last three months of the year, decreasing 13.4% from Q3, according to Colliers International.

5. These Tech Companies Are Paying Workers the Same Rates Across U.S.

Tech workers and employers alike are beginning to question location-focused pay scales. A handful of companies are moving to abandon them altogether.

In setting pay without regard for location, tech companies including Reddit Inc. and Zillow Group Inc. are making a potentially expensive gamble to retain talent and gain a hiring edge. The move can entail maintaining relatively high salaries of employees who are relocating, and adopting a revised scale for new hires. Though it is early, the move challenges a long-held, but not universal, notion that where people live should determine what they make.

Some big tech firms including Facebook Inc. were clear early on in the pandemic that people moving away from the Bay Area to less expensive cities would see a pay cut. Payment platform Stripe Inc. offered one-time bonuses for workers who moved out of San Francisco, Seattle or New York—and agreed to a pay cut of up to 10%.

Your success blesses others. I wish you a great a hugely impactful week!

Ken Ashley