Analysis: U.S. companies spend billions on stay-at-home tech, boding ill for office properties
01/07/2021 18:06
* Remote work a long-term challenge to office demand
* Shared desks key to reducing office size
* Uncertainty driven by remote work has slammed office
building
sales
By Herbert Lash
NEW YORK, July 1 (Reuters) - As the U.S. economy reopens,
ramped-up corporate spending on video systems and plans to
increase shared workspace suggests hybrid work is here to stay,
potentially weighing on commercial property prices in New York,
San Francisco and other major cities.
After jumping in the wake of the pandemic, sales of tech for
facilitating remote work continues to trend higher. Retail sales
of USB cameras and computer microphones rose 77% and 36% each
from March to May from the same period last year, after doubling
from those months in 2019, according to market research firm NPD
Group.
Computer goods maker Logitech International SA LOGN.S said
earlier this year it expected sales of webcams and cloud-based
video collaboration equipment to remain strong in 2021, after
tripling to $1.48 billion in the 12 months ended in March from a
year earlier.
And a Morgan Stanley survey showed that a majority of
companies plan to increase shared workspace, as they try to
reduce costly real estate.
"Executives at many corporations would like everyone back,
but technology spending plans tell you they recognize the need
for a flexible workspace," said Vikram Malhotra, a real estate
analyst at Morgan Stanley.
The rise of the hybrid office poses a headwind to workspace
demand in cities like New York and San Francisco, where there
have been few big-name office building sales in recent months.
Institutional holdings of office assets in the two cities are
valued at $231 billion and $128 billion, respectively, according
to LaSalle Investment Management.
While leasing activity has rebounded since the lows of the
pandemic, rental prices are weak and vacancy rates remain high,
weighing on the value of office buildings and stymying deal
activity.
Total sales of office properties in Manhattan, for example,
slid by more than half to $5.4 billion last year and were just
$41.9 million in the first quarter of 2021, according to Cushman
& Wakefield Plc CWK.N .
The work-from-home trend will weaken the pricing power
landlords have on leases and the returns investors expect from
office assets, Malhotra said. The bank estimates the changes
will reduce the amount of U.S. office space by about 13%.
Green Street, a real estate advisory firm, forecast in June
that remote work may negatively impact office demand by about
15%.
"Prices in those big global gateway cities - New York, San
Francisco - they're the poster child, they're soft," said Mark
Zandi, chief economist at Moody's Analytics.
ACCELERATED CHANGES
Many corporations plan to allow at least some remote work,
including Swiss bank UBS Group UBSG.S , which earlier this week
announced plans for a mostly hybrid workforce. urn:newsml:reuters.com:*:nL2N2OA0WS
Other companies, including Goldman Sachs Group Inc GS.N and
Morgan Stanley MS.N , have resisted establishing a hybrid
workplace. urn:newsml:reuters.com:*:nL2N2NY2R1
At Cerner Corp CERN.O , a U.S. healthcare technology
company, 75% of its 27,00 employees could be "dynamic" and work
half the time remotely, said Tracy Platt, Cerner's chief human
resources office.
"We want to get the best of both worlds and we're confident
we can through this model," she said.
Not everyone believes hybrid work will shrink offices or
maintain its appeal in the long run. Most employees will likely
work three- to four-day weeks, making space consolidation
tougher, said Alex Goldfarb, an analyst at Piper Sandler.
At the same time, "people want to be seen as though they're
part of the game, and there's not a game out there that you can
win if you're not on the field," he said.
Still, the pandemic has accelerated changes that had been
afoot for some time. Vocon, an architecture firm, designed
offices before the pandemic that had 20% of employees at
so-called hot desks, where multiple workers use a single
physical work station at different times. Now, said Vocon, some
clients are allocating more than 40% for what can be shared
space.
"Does it make sense to require people to come to a certain
specific location every day? In some cases it didn't make sense
before the pandemic," said Deb Donley, owner and principal at
Vocon.
Demand for office space does not need to collapse to
adversely impact occupancy, rents and values, LaSalle analysts
wrote. A demand drop of 5 to 10% could spur elevated vacancy
rates and delay the sector's recovery five or 10 years, the unit
of Jones Lang LaSalle Inc JLL.N said.
LaSalle has underweighted its exposure to office buildings
since well before the pandemic, said Rich Kleinman, LaSalle's
co-chief investment officer for the Americas.
"Many people have not been accurately assessing the amount
of capital that's needed over the long term to own an office
building," Kleinman said. "It's not as attractive of a
risk-return proposition as some other property types."
(Reporting by Herbert Lash in New York
Editing by Megan Davies, Ira Iosebashvili and Matthew Lewis)
((herb.lash@thomsonreuters.com
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