The “Under-Demanded” Office Market

“There’s almost no liquidity in the office market. No one knows where pricing will be when one of these towers finally sells.”

By John E. McNellis, Principal at real estate developer McNellis Partners, for WOLF STREET:

The swallows abandoned San Juan Capistrano in the 1990s. Their home—the historic mission—underwent a renovation, the birds lost their ancestral nests and, despite every effort to lure them back, they have yet to return in meaningful numbers.

No less flighty, workers abandoned their office buildings in 2020. They, too, have migrated elsewhere. Those in real estate ask themselves when office employees will return. Others wonder if they’ll return. Back to that existential question in a moment.

CBRE has just published the 2nd quarter results for San Francisco’s office market. Almost 29% of the city’s office space—about 25 million square feet—is now available. Vacancies increased by 362,000 feet in the 2nd quarter, and about 550,000 feet of brand-new office space is coming on-line soon. In short, the vacancy rate is climbing toward a cloud-obscured peak. One industry executive wryly observed, “We’re not overbuilt, we’re under-demanded.”

Turning this data around, 71% of the city’s buildings are leased. Sadly, that figure is somewhat misleading. In these covidy times, a building’s occupancy rate is a far more critical metric than its leased rate. Kastle Systems, a workplace security company that requires office employees to swipe entry cards, provides precise occupancy data. As of this writing, San Francisco’s overall occupancy rate—the workers who actually show up—is 39%.

A 39% occupied building may have a happy ending, but—like falling in love with someone with a bad heart—you could find yourself praying in the emergency room before it’s all over. Meanwhile, with the exception of the swankiest buildings—say, Sales Force Tower—rents are plummeting, tech is down 24% on the NASDAQ and shedding workers like winter coats in Miami.

None of this is news to the office world’s big hitters—its major league owners, lenders and brokers. In fact, the country’s biggest banks have all but ceased lending on high-rises and big equity, the kind you need to buy a $500 million building, has run for the exits.

“There is almost no liquidity in the office market today,” a seasoned mortgage broker proclaimed. “No one knows where pricing will be when one of these towers finally does sell.”

I asked a handful of industry leaders how much high-rises had dropped in value over the last two years. Their guesses—yes, guesses—ran anywhere from a decline of 25 to 60%. This broad lack of consensus is part of the problem; without consensus on value, there is no marketplace, leaving office buildings buried under ten feet of permafrost.

Why? Back to those missing workers. No one (including this writer) knows how many employees will eventually return.

Assuming you’re OK with deep recessions, the rosy scenario for a prodigal worker homecoming goes like this: tech’s massive lay-offs will continue, employers will regain the whip hand, and they will force their employees’ return.

One pundit believes that clever workers will come back on their own once they realize that remote working sets them squarely at the lip of Mount Doom. How? If work remains remote—if employers capitulate to it—companies will stop paying $220,000 a year to some guy coding from his Snake River shack when they can get the same quality from Mumbai for $90,000.

The problem with this homecoming prediction is its underlying assumption that tech actually wants its employees back. I asked a half-dozen CEO’s of small to mid-sized tech companies how efficient they were running remote.  This one had total consensus: they’re all humming along, 90-100% as effective as they were pre-Covid.

That may not be true for the FAANG’s of the world, and it certainly isn’t true for start-ups—everyone agrees that nascent companies require all hands to huddle endlessly. But between Google and a garage venture, there must be hundreds, if not thousands, of companies with no need to revisit downtown anytime soon.

This column has recently insisted, that despite all the troubling economic news, real estate would cough up few good deals because of the trillions in opportunity funds desperately seeking yield. Office buildings could prove an exception. In five or six years, we may well look back at 2023-24, whack ourselves on the forehead and swear, “How the hell did I miss that? I could have bought Class A office for fifty cents on the dollar.”

If you’re willing to place a career bet on the return of the swallows, you could possibly reap the biggest reward real estate has offered since 1992. For what it’s worth, I do think the city will right itself, the employees will return and landlords will once again toast each other’s brilliance. I’m just glad I don’t have to bet on it.

By John E. McNellis, who, in addition to his books on real estate, has just now published a novel. Check it out: O’Brien’s Law: A Romantic Thriller.

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  120 comments for “The “Under-Demanded” Office Market

  1. Wolf Richter says:

    Dear Readers,

    Many of you have come to appreciate the funny and insightful articles of John McNellis, the author of this article, and a long-time author on WOLF STREET. In addition to his books on commercial real estate, he has now published a novel, O’Brien’s Law: A Romantic Thriller.

    Check it out on Amazon, it’s on pre-sale now:

    • SS says:

      The unreal pricing of Houses and Offices have the following real ill effects:
      1. It boosts paper assets of businesses allowing them to take more debt, even when they are insolvent.
      2. It causes investors to hog multiple empty houses near offices (as vacation homes, rentals, farms etc) causing working class to have to live far and spend time, gas (environment) and money to drive for hours.
      3. Higher office costs = low salaries. Higher house cost = more expenses. So, in effect working class becomes poorer and their labor yields lesser.
      4. With tightening job market executives force their employees to come to office to justify the office space expenses!

    • phleep says:

      I have no affiliation here, and hope I’m not out of line, but I notice it is free on Kindle Unlimited.

  2. Frostbitefalls says:

    Yes John, good and witty article. And multiple $64,000 questions. Will occupancy ever return to a healthy % and at what type of discount ft2? Who wants to be the first toe in the water and purchase a building if financing can be found?

    • andy says:

      Occupancy returns when they convert offices into studios and we start to Live From Office (LFO), and shop in company store.

      • Implicit says:

        Perhaps a vertically large office building could have a layered cake approach by offering layers of rentals with specialty shops, restaurants and other services along the way up and down, like a hydroponic garden grown vertically with a mixed bag of offerings for the residents. It also be a destination site, especially the bottom three layers.

    • snk says:

      I don’t see a sustainable vacancy rate under 20% for the foreseeable future. The office market in SF transformed in the late 1990’s from FIRE to tech because companies in Silicon Valley wanted a downtown presence to attract younger workers. Give them the city vibe. It worked, it grew and it flourished. Web 1.0 started it, web 2.0 solidified it and web 3.0 (blockchain) is nowhere near (NY, Miami, Singapore, Dubai). You could look at SOMA in the late 90’s and see a trend with huge demand behind it. Where is the demand going to come from? You know, to fix the “under-demanded”.

    • Candyman says:

      Perplexed here….my building (I rent retail space) sold last October for $10m over assessed value. Bok value, $32m, bought for $42m. What were they thinking? Boston financial district is dead. Amenity businesses such as myself may not survive. Many are already closed. My guess 65% will be the return rate, overtime!

  3. 2banana says:

    I see much debate and first hand experience on this point…

    “companies will stop paying $220,000 a year to some guy coding from his Snake River shack when they can get the same quality from Mumbai for $90,000.”

    • Josh says:

      Funny I was about to comment on this as well. I’ve been involved in multiple outsourcing initiatives and it usually falls apart #1 due to the time difference. It’s a lot easier to collaborate remotely in the US with at worse a 3 hour time difference than the 8.5-11.5 hour difference with India. Some companies already pay US employees differently based on the cost of labor for a particular market and this does mean that some people will make more than others but there aren’t currently enough developers in these low cost areas to put downward pressure on the salaries nationally at this time.

      • Mike G says:

        My experience also. Good software development relies on communication and rapport, and the barriers of working hours differences, cultural communication styles and even accents make this much more difficult to pull off with people on the other side of the world.

        • joedidee says:

          most coding is never good – most have severe design flaws
          what makes a SYSTEM RUN is GREAT QA/QC

          I love hearing about system crashes
          our record was nearly 10 years before system reboot

          different time and place

        • Pete in Toronto says:


          I worked at a mutual-fund company for 11.5 years. The unitholder system was on an IBM AS/400 (later called iSeries). I heard of it being down only once in that whole time (and only for a few hours!).

        • LK says:

          Contract coding work has a high probability of being shovelware. Not like QA is a standard industry practice, cost center that it is, and schedules are usually tighter than the time needed to deliver quality coding or build team cohesion / trust to deliver that code.

      • SnotFroth says:

        I recently helped send a department of non-coder jobs to the Philippines and so far they’re doing a better job than the Americans.

        • Jon says:

          Thanks, patriot. Your fellow Americans appreciate your hard work and will happily wash your car at 9 dollars an hour.

        • Wisoot says:

          and actually Jon’s post although sentimental does say a bit about your business approach allowing future partners to deselect you based upon your previous choices. all recorded online for posterity. never before did a log of choices mean so much and wield such power to destroy opportunity.

        • Venkarel says:

          Reed Elsevier moved a majority of the publishing busy work related to their Lexis property (Legal books and Lexis-Nexus) to the Philippines years ago. They are now in the process of moving to a different country.

        • Shiloh1 says:

          That’s fine.

          The happiest and most contented people I ever met on earth were the Amish / Mennonite when they were changing trains in Chicago Union Station.

          Best wishes to the coders in the Philippics on same. Hopefully it benefits some poor $25,000,000 a year U.S. CEOs, too.

          I was happy leaving the rat race in the city every evening while grabbing a Fosters oil can for the train trip home. Now I don’t have that problem to escape from.

          Like to see the Willis Tower converted to house the homeless. Great amenities for them as Shake Shack and Starbucks are already in the building.

      • Anon says:

        I spent 40+ years in IT. Starting with working as a nighttime computer operator when I was in college. Almost all of that was in supporting business processes. Not primarily as a systems administrator. Data Processing not “computer science”.

        I never had to collaborate with people working from Asia.

        My experience was working with folks from Eastern Europe after 1989. They all had excellent English skills. Many of them had both Mathematics AND Computer Science degrees and/or training.

        The main stumbling block they had was understanding how American businesses worked.

        Our commercial firms do things differently than they were used too. They were unfamiliar with American business processes.

        So what American managers wanted, or actually NEEDED, was … well … foreign to them.

        If you’ve ever tried to take program specifications from an analyst and turn it into ‘code’ to support a particular ‘business process’, you’ll understand that lots of “unwritten knowledge “ is required.

        Even at ‘not for profits’.

        • El Katz says:

          The issue that I often found was that we speak “American” and they speak “English” and do not understand the American slang language / idioms.

        • Not Sure says:

          To both Anon and El Katz,

          You can’t compare foreigners 30 years ago to foreigners now in terms of understanding American culture. I work for a company owned by a multi-national corp and I interact with people from all over. They often speak better english than a lot of Americans, they know our slang, they are surprisingly familiar with our culture, and they understand capitalism just fine. They’ve watched our movies and entertainment for decades along with our shaping of internet culture, which has changed everything.

          There are difficulties with timezones and other practical processes, but translation and cultural unfamiliarity just aren’t the problem they used to be. We’ve been exporting American culture and IP for decades and the world has been consuming it reliably.

        • El Katz says:


          Your observation is incorrect and my experience is not 30 years old. I worked for a Japanese company and often had to explain things in “King’s English” rather than American to the Japanese transplants on TDY.

          Ditto dealing with the Indian programmers that worked for Accenture and others. I usually had to rely on their American counterparts to “translate” what the issues were.

          Watching “Office Space” and living it are two different things.

        • Shiloh1 says:

          I always preferred the Zsa Zsa Gabor accent, Dahlink, but haven’t heard any on the credit card companies’ automated voice systems.

        • LK says:

          It’s almost like cross-cultural communication is hard and that it is incumbent on both parties to understand and account for this.

      • Dana says:

        Offshoring of high skill jobs has been tried since the ’90s and it was always a disaster (ask SAIC) between the 12 hour difference and the “Low ethics” cultures, it just doesn’t work. High end tech companies are quite willing to pay SFO salaries to people in the flyover. Especially if they don’t have to provide offices in SFO!

    • LeClerc says:

      Then why hasn’t big tech reduced its consumption of H1-Bees?

      If WFH=true, then why not Indians first?

      • Implicit says:

        I think an international company based out of India, but with multiple “Billing” and accounting offices in some of the countries will always want to hire people from each company that those billing offices due to better translation communication speed. If cash is king than cash conversion from services is Ace, Queen and Jack. Things can get lost in translation both figuratively and literally.

      • Dana says:

        H1-Bees are cheap, and captive workforce. They’re only usable because they’re in the US timezone. BS degrees from offshore are worthless, that’s why so many get MS degrees here.

    • Matt says:

      The fact is you can’t get the same quality in Mumbai.

      • SilentC says:

        I don’t know if that totally matters. I’m seeing the top notch best employers to work for that pay really well are pulling employees back to the office and the more “crappy” companies that struggle to attract talent are still embracing WFH to get talent. I think crappier companies are more open to paying half fare to someone in Latin America in their time zone or even India.

        • Lily Von Schtupp says:

          Medical care coordination and case management has been getting outsourced to Latin America.

          Like said above, it seems to be the crappiest companies doing this and the results have thusfar been disasterous in my experience. Communications wiped out for weeks & months on end is hardly quality care coordination. No one noticed or cared until Compliance got involved and admin needed to protect their phoney-baloney jobs.

          Now AI is in the pipeline to replace medical coding, auditing and utilization review. Anything to keep from paying human living wage to care for other humans. Skynet’s stellar reputation for compassion and all…

      • Texanalways says:

        All you say is spot on. Many companies sent programming jobs overseas then quietly brought them back home.
        Coding is logic but that logic is country specific.
        Many of my family members (myself included) have CS degrees. All are now working from home with excellent pay. My sister was going to retire and her very large company told her she could always work from home, gave her a raise and retention bonus to stay. She negotiated for her son who lives with her and son-in-law who lives a block away to also work from home. This country has long had a lack of CS professionals and that will keep giving them an edge. Another nephew works for Microsoft and makes a very large salary at age 27 and is not going back to the office anytime soon. Not one of us has ever had a problem with finding employment in our fields even in very bad recessions. I told my kids pick either a government field or CS as those are the best for guaranteed employment. My children are just out of college graduating the same year during the pandemic – 2020. One is in government and the other computers. Both found great jobs working from home in DC and Denver. They do go into their offices mainly to socialize or for the gym but are not required to.

  4. polistra says:

    SF has one unique problem: What happens if a skyscraper with an active quake-damping system goes bankrupt and can’t pay for electricity?

    • VintageVNvet says:

      Maybe other places have buildings sitting on many layers of detritus such as old ships and bay mud etc. pol?
      Having looked extensively at ”soils reports” for SF and area, many of which showed all kinds of ”stuff” that has been built on for couple of centuries now, seems unique enough, or at least rare.
      Keep the hopium alive that rents in SF will eventually go back to the ( inflation adjusted, far shore ) levels of the late ’60s/early 70s when friends rented a nice 2 bedroom flat just off Haight for $50 PER MONTH!!!
      And artist friend similarly for a really nice studio with abundant north light.
      We can dream of those days of cheep rents, great artistic focus, and summers of love, eh!!!

    • Ed C says:

      I don’t think that a ‘tuned mass damper’ system requires electricity. It is just a giant weight hanging there. It sways out of sync with the building and thus counteracts the building sway. Just my two cents and I could be wrong.

  5. Halibut says:

    My guess is that even *more* of this space becomes vacant. Why would I be interested in a 60% off sale for something I clearly do not need?

    COVID has proven, conclusively, that we can all work, collaborate and phuck around just as efficiently as we ever did without the whopping line item known as the office.

    Everyone always hated the office anyway.

    “Human beings were not meant to sit in little cubicles staring at computer screens all day, filling out useless forms and listening to eight different bosses drone on about about mission statements.”
    —Peter Gibbons

    • TimmyOToole says:

      Sounds like someone has a case of the Mondays. Some of us miss the office. I see more of a hybrid office for our future with laptops and floating unassigned desks. And a much smaller space. Wework might do better post COVID. most of my workers are fine never coming in again. I don’t mind as long as I see output. Our interaction is now online including the “parties”.

    • Implicit says:

      Agreed. remote working will be proven to cut the bottom line by a lot.
      They will continue to become a larger % of the work force for years to come. It is good to have ESPn!

    • Shiloh1 says:

      Another benefit of declining office use is no Me Too allegations / claims on the company’s Employment Practices Liability Insurance (EPLI) policy.

    • SocalJohn says:

      Well, I do physics research, and I think WFH is disastrous. In person collaboration is too important. The lame meeting solutions like MS teams suck. Everyone of my coworkers agrees, and we prefer to be in common workplace. Maybe hard core science is different from CS. Go ahead, fire away.

      • 728huey says:

        I’m no physicist or chemist, so I’m inclined to agree with you about the need for in-person science work, but I’m sure there are plenty of people online who would say they have no need to be physically present to work on science projects and would even present stats wiki-style on how people from Boston to Baltimore to Bangkok to Bangladesh to Bolivia were able to collaborate on projects.

  6. David Hall says:

    DC city office vacancy rates were close to 14% in 2019 before the pandemic. In 2022 DC office vacancies were close to 18% with reports varying from publication to publication. DC metro area suburban office vacancies are generally higher than downtown office vacancies. Office tenants have been getting concessions from landlords before signing new leases.

  7. nefff says:

    Wow, this article and the swallows analogy is spot on. Having lived in San Juan Capistrano mid 90’s until 2020. I took a tour of the mission during its renovation while helping a grade schooler do a report on its history. After the renovation laws were enacted to stop people from “bird proofing” the eaves of buildings and homes ( Orange county Ca. is a bird sanctuary) so the swallows could nest. So just like the swallows, people forced from their central point of congregation spread out to the surrounding residential areas.
    My business involved doing maintenance on office and commercial buildings throughout southern Ca. When the lockdowns started I was in L.A. on an 8 story bank building’s roof with the building engineer and we were looking down on the normally bustling city below, there were only a few cars, no one walking. We were discussing how absolutely crazy it was and how/if things would ever return to normal.

    • medial axis says:

      “…it was and how/if things would ever return to normal.”

      IMO, we are never going back to 2019. The world has changed forever. But the wheel’s still in spin so it’s best not to speak too soon :-).

      • Steve2wryt says:

        Agree, 2019 no. Companies and workers will hash this out and when we get on the other side of whatever sh*tshow is on the horizon here I’m sure there will be a variety of ways different businesses organize, many that have not been invented yet.

      • nefff says:

        Oh you can speak alright, but the words are/ will be redefined…
        Normal the new .gob def. coming in 5,4,3,…
        : the way things should be.

    • El Katz says:

      The swallows built their nests on the overpasses on I-5.

      • nefff says:

        Mr. Katz thank you for the insight, I ALWAYS learn something in these comments, from finance to Ornithology, this site has it all! This also confirms the bird analogy, seeing as many of the displaced humans also end up under freeway overpasses.
        Maybe I could apply for a gov grant to study the correlation of human/ bird overpass occupation behaviours? I’m thinking I could begin with $3.6M for the initial study…

        Ill show myself out, thx.

        • Implicit says:

          haha’ It is all relative. People living in the squalors shown in “The
          Slum Dog Millionaire would consider it a move up. If you can’t laugh, you’d cry.

    • Happy1 says:

      This is exactly what I think. About half of what is done in offices can be done at home. Many people prefer this for child care, commute, pet care, and convenience. Some prefer the office environment. People at different times of life may be in either camp. In the long run, people will shift from home to office and back in a much more fluid manner depending on personal needs. Companies with stupid inflexible ideas will not get the best people. Probably half of current office space will be extraneous. I’m saying this based on what I see at work as well as what I see with family and friends. It will be the largest change in work since the explosion of knowledge work in the latter part of the last century, and office based real estate is about to be worth much much less.

  8. buda atum says:

    “companies will stop paying $220,000 a year to some guy coding from his Snake River shack when they can get the same quality from Mumbai for $90,000.”

    Or from Lagos, since coding pays more and is less risky and more secure than being an African prince and we are very willing to code instead, so I think office space will need to find other things to be useful for.

  9. patrick says:

    living in a college town and living only blocks from campus – I ask the young folks _” what is the one thing you want from job” the answer is always – ” work from home”

    • Harvey Mushman says:

      I understand why they would say that, but I have to say that when I was in my 20s, working in an office was a lot of fun. Going to parties with co-workers. Occasionally making out with girls from the office at those parties. Met my future wife at a work Christmas Party. Good Times!!!

      • Apple says:

        There is the internet for that now.

      • Shiloh1 says:

        1980s? Those were the days!

        • Harvey Mushman says:

          Boy you said brother!

          1985 to 1996 were the best for me… your mileage may vary.

      • Ron says:

        If you even dare make a move on a coworker you’ll get fired faster than your head can spin. Not worth the risk, IMHO. Also make sure you are never alone with a female coworker lest you become vulnerable to sexual harassment allegations.

  10. Michael Engel says:

    1) Snake River “expert” for $220K. Mumbai corp Pyramid for 90K.
    2) Since 2020 we lost millions of small businesses. Their retail stores
    and commercial spaces are still vacant.
    3) The FANGS are thriving, loaded with cash to finance themselves in a rainy day. High end employees walk their dog on the beach, run in the park, swim in the bay, take hours of vitamin D, before going to work on their sofa. Dolce Vita.
    4) Banks assets are in RE.
    5) We lost more than a million boomers in the last two years. Their apt have been leased. Demand for apt is high. There is no demand for office
    and retail spaces. RE is bipolar.
    6) In July employers added 528K workers. In the last three months 2.8
    million workers. Wages jumped, but office and retail spaces slumped.
    7) IF QQQ bear market rally reached it’s terminal point, the FANG firing
    will get a Trigger.

  11. Michael Engel says:

    John E McNellis no spin. Thanks.

    • doug says:

      Yes, I always feel like I am reading as his business partner or something. He is a good fit for this site. Thanks to both Wolf and John. Good stuff.

    • Dan Romig says:


  12. Mickey Donkey says:

    …And living in a college town, close to campus there is a proliferation
    of Private/Public Partnerships in developing office buildings on campus which started about 2018-2019 before Covid. Currently completed and
    now mostly vacant.

  13. Harry Houndstooth says:

    More wisdom dispensed daily !

    In My Humble Opinion, I wouldn’t be interested in Class B (or C) office space at a discount at this time. In my small world, Work From Home is working for employers and employees, interviews, meetings many types of medical, psychological, and legal visits and even government. The genie is out of the bottle. It may take a long time to grow into the existing office space.

    Wolf Richter and others on this site have discussed conversion to condos or residential, but perhaps someone with a really good thinking cap will come up with a better idea. When the price gets low enough, the beauty of our capitalist system will shine.

    • Beardawg says:

      Agree with your sentiment HH.

      Anecdotal, but the empty Sears anchor building at the Gateway Mall (Prescott AZ) has been repurposed as an indoor Pickleball Club / gym. As a fitness-obsessed person myself who is saddened by the obesity epidemic in the USA, the use of larger spaces for exercise activities, especially in cold weather states, sounds promising.

      I realize the bang for the buck per square foot is prolly not gonna pencil out … but I can still wish !!

    • Happy1 says:

      Office real estate is Wile E Coyote spinning his legs in the air after running off a cliff. And he is holding an anvil.

  14. Blue shirt says:

    No one is in tbe office, no one wants dirty job, airlines suffer, gas stations closed due lack of workers, stores with long lines and only one register working – how the hell are people feeding their families? Working from home doesn’t create shit, best case some buggy software or useless code. I hope the time when real work will be rewarded is coming.

    • Apple says:

      I had to take one of the new employees aside, he was fresh out of college and hired during Covid, and explain how the first 10 mins of meetings are generally spent on sports ball. You never must jump into the meeting like you would on Teams.

      And when the meeting is over, you need to spend at least 5 mins chit chatting about VPs vacation plans, his new car, etc. You never just walk out.

      He thought this was all a waste of time and not productive, especially when he could be multitasking and listening to a meeting and working on something else, but I explained this is what it means to work in an office.

      • Shiloh1 says:

        (Don’t) miss wasting many a Monday morning in the office on “how ‘bout dem Bears!?”

        Trained myself at a very early age to understand a baseball game box score. A 30 second glance will provide me with enough material for about 15 minutes of b.s. talk as if I actually saw the game.

        • NBay says:

          Took a while for some truth to come out….several years, in fact.
          But it was what I always figured……suits……and hard earned money…..uh-huh.

    • David Hall says:

      The Bureau of Labor Statistics reported worker productivity decreased in the first quarter. Was this caused by work from home people not working while at home, unions, aging population, supply chain disruptions, obesity or other factors?

      “Nonfarm business sector labor productivity decreased 7.3 percent in the first quarter of 2022, the U.S. Bureau of Labor Statistics reported today, as output decreased 2.3 percent and hours worked increased 5.4 percent. This is the largest decline in quarterly productivity since the third quarter of 1947, when the measure decreased 11.7 percent.” BLS June 2, 2022

  15. TK says:

    I like the swallow analogy! Wildlife always finds the most beneficial place to do their business. They are not bound by leases, shareholders, politicians and such.

    • 91B20 1stCav (AUS) says:

      Speaking of birds, the ‘not overbuilt, just underdemanded’ comment in John’s excellent article for some reason recall the Python’s ‘pet-shop dead parrot’ sketch: “…he’s not dead, he’s just sleeping!…”.

      may we all find a better day.

  16. c smith says:

    Assuming office workers never return in large numbers, why would the market not clear? The answer: potential bailouts. No one wants to sell just before a huge federal bailout is offered to banks with mortgages on these things.

  17. CreditGB says:

    CFOs look at costs. If the consensus on the question of productivity is 90 to 100 percent for remote workers, the next question is why the hell are we paying for massive “downtown” rents? To keep executives in luxury?

    Those that can and are nimble enough have already been pulling up stakes and left the “big offices” and even the states that add to operating costs.

    If you are competing with one of these, and remain in that high rent office box, something’s gotta go. Usually employees, but then with fewer of those, does it still make sense to occupy the big glass tower offices?

    Have no real answer but it seems the subject is much broader than simply WFH vs office.

    • Harvey Mushman says:

      “Have no real answer but it seems the subject is much broader than simply WFH vs office.”

      I agree.

      • Apple says:

        WFH vs the corner office. The corner office will win ever time.

        At home there is no one to get you your coffee and lunch everyday.

        I can’t see men who have spent 40 years climbing the corporate ladder willingly give that up.

        • Shiloh1 says:

          When I used to run races in the city on the weekends I would go back to the office to put my legs in waste paper baskets filled with ice water. Never saw any of the corporate corner office clowns.

    • Motorcycle Guy says:

      “CFOs look at costs. If the consensus on the question of productivity is 90 to 100 percent for remote workers, the next question is why the hell are we paying for massive “downtown” rents? To keep executives in luxury?”

      I just watched the movie,”Company Men” for the second time. The answer to your second question is, Yes.
      The company used in the movie is profitable, the founder/CEO is being paid millions and they are laying off most of their employees all the way up to the cofounder. There’s a scene where the executives are walking through a new office building under construction and the CEO is showing the surviving executives where their office is going to be.

  18. patrick says:

    I am old enough to remember when the american companies started to re-locate manufacturing to lower cost countries – and the labor force would always state to who ever would listen – ” these jobs can’t be sent overseas we have skills they don’t have there- we are better trained and there are no language problems etc” and now its the technology workers making the same arguments – it will end the same as the factories

    • Jon says:

      And yet these companies want the benefits of American legal codes, clean water, sewage and hygiene in general, a stable currency and functional roads. Yet they don’t want the responsibility of maintaining a functional society by adding to the general welfare of the American citizen. At least Carnegie built libraries across the country.

    • Shiloh1 says:

      Cant the tech guys sab- a- to- gee the system more cleverly?

    • Harvey Mushman says:

      “these jobs can’t be sent overseas we have skills they don’t have there- we are better trained and there are no language problems etc” and now its the technology workers making the same arguments – it will end the same as the factories”

      Patrick, I started working in tech back in 1984, and at that time tech had already been moving offshore.

    • AbyNornal says:

      Cyclical…& Hi5

  19. Michael Engel says:

    1) In 1870, after the civil war, there was a lot of gambling on harness races.
    2) There were no car races, no baseball, no football and no soccer. People
    gambled in tracks in Cleveland, Buffalo, Philly, CT… Horses moved in train from race to race.
    3) People bred horses to beat records. The media was obsessed. Cheating were common.
    4) To avoid cheating horse were racing in tranches. Under 2:40/mile,
    under 2:30/mile, under 2:20/mile. Race tracks prevent 2:20/mile racing with 2:40/ mile.
    5) C/S should read Ellen Williams: “Out of the Wood” story of fast horses harness racing.

    • Cobalt Programmer says:

      For educational purposes only…
      1. Two posts per blog is enough.
      2. Even if you are GS-13, can also be fired at cause.
      3. Dont overtime on a Saturday.
      4. Have a nice lunch and sleep afternoon. Reduces hallucinations and improve dyslexia.

      • phleep says:

        Talk about not having a life. I have contemplated the syntaxes of Michael Engel and Cobalt Programmer side by side, and pondered that. Now they seemingly meet. Will it upend the universe?

    • Shiloh1 says:

      Would you agree that Dan Patch was the greatest of all time? The Pride Of Oxford Indiana. Later ruined by a snake-oil pharma owner.

  20. Spaceship rearview mirror says:

    > If work remains remote—if employers capitulate to it—companies will stop paying $220,000 a year to some guy coding from his Snake River shack when they can get the same quality from Mumbai for $90,000.

    I work at a tech “unicorn” and have sat on interview panels for a few potential directors. They do that weird smile and talk about “collaboration” etc. when we bring up getting all the Americans back in the office.

    When we talk to them about their experience handling teams distributed across continents, including those $90k programmers in Mumbai, these director folk look like they might start bleeding out of their eyes.

    My takeaway is a 4 timezone spread among programming teams in the US would be something they could stomach if we don’t go back into the office, but hiring the good men in Mumbai for half the price seemed to be something no one would want to do.

  21. Michael Engel says:

    5. Iran programmed a second front to dbl Fed Assets.

  22. Can argue work from home provides greater productivity for employer.

    Because, essentially, you are always at your workplace.

    No time and energy wasted on commute.

    Any issue arises and you can address it immediately. You do not have to drive to work.

    • Marbles says:

      Please remember that the ones doing the real work cannot do it from home. Food does not magically produce on the shelf. The power on the pole was not produced in your spare bedroom office.

      • Implicit says:

        I know what you mean; however, the another growing trend, besides WFO, is programmable robots. Like the drones that do home inspections, if they don’t get shot down.

    • Shiloh1 says:

      Your last point – really important for the corporate ESG rating!

    • Wisdom Seeker says:

      Job market will settle out. Employers who require on-site work, in fields where WFH is an option, will need to pay a premium to get the talent “local” to the job. Basic supply&demand logic.

  23. Seneca’s Cliff says:

    I think 2019 was the peak year for office occupancy and so called “knowledge work”. From here on the increasing cost of energy and scarcity of resources will reverse the 120 year trend of people moving from work in the fields, factories and mines to manipulating symbols in the offices. We are now starting a long slow grind back to more and more people working back in the gritty world. A couple generations from now “office work” will be a historical curiosity and the Main purpose of high rise towers will be places to salvage materials from.

    • VintageVNvet says:

      1. High rise construction CAN be very efficient and even pleasant IF the social issues are worked out, hopefully NOT as some cities have formerly done with machine guns on every corner/landing.
      2. Future AI type harvesting bots will pick food more gently and only when it is perfectly ripe to send to market THAT DAY, as it used to be done by people, still is some places.
      3. Most ”real work” can and will eventually be done by robots,,, MOST; best work will always be done by people with a passion for THAT work.
      4. Populations,,, ALL populations of people, must be re-aligned to balance with environment before entire globe looks and acts as desert, etc.
      5. There is plenty of room for growing food locally almost everywhere; Water is now and will continue to be limiting factor.
      6. Solar energy is abundant, physics and engineering to harvest and store are advancing rapidly.
      7. Gravity energy is abundant, physics and engineering to harvest and store are advancing rapidly.
      8. Don’t Worry, Bee Happy!!!

      • Cobalt Programmer says:

        I have to apologize. For a moment I thought you are him.

        1. Big three automakers had members in every city’s planning committee and policy makers club.
        2. They slowly dismantled trolleys, cable cars and street cars. Any other affordable public transportation system including railways.
        3. They make every street and suburbs looks unfriendly to the pedestrian.
        4. Eventually, any alternative energy fuel system is labelled as in-efficient and hence useless. This includes even small improvement in ICE systems.
        5. Now, “they” own every planning committees, any deviation from fossil fuels is ridiculed and suppressed like flat earth theory.
        6. To my friend eating donuts in post office, “Hello…”

        • Ed C says:

          And why do I think that you would oppose the nuclear power plants required to power your non-fossil fuel powered cars?

          Lecturing and slogans are easy. Real solutions are the challenge.

        • Cobalt Programmer says:

          In response to Ed C ” you would oppose the nuclear power plants ”

          Companies can own the uranium mines not solar power. Wind power cannot be “owned” but oil can be. The nuclear power became practical due to the M industrial Complex. There were so many useless warheads due to the treaties with the second world. They were used as reactor cores. Other than that, I saw a Cerberus with two tails outside the nuclear power plant thats why…

        • Happy1 says:

          The idea that a cabal of auto manufacturers is the reason for suburban development is a fantasy. Cities in the 1950s were dirty, crowded, and starting in the 60s, increasingly dangerous and with school desegregation in the 60s and 70s, you often weren’t able to have your kids attend the neighborhood schools. These factors, plus the old fashioned desire for clean air and a yard, are the reasons for people moving to the suburbs. People voted with their feet.

        • Apple says:

          And the city folk carried all their problems to the suburbs.

      • drifterprof says:

        “2. Future AI type harvesting bots will pick food more gently and only when it is perfectly ripe to send to market THAT DAY, as it used to be done by people, still is some places.”

        Yeah, when you have frequented traditional open air produce markets like almost everywhere in Thailand, buying packaged and otherwise corporate channel produce in the modern supermarkets can feel a little weird and artificial.

        My wife goes to the open air markets daily, sort of a social habit from her youth. There are enough buyer-beware consumers in these markets that the vendors cannot slough off inferior or old produce. There are multiple competing small business vendors and one can simply step over to the next stall. Huge variety of fresh-picked fruit. For example, when I prepare my sourdough pancakes with my homemade yogurt, my wife typically garnishes with, almost straight from growers, chunks of papaya, pineapple, dragon fruit, melon, watermelon, guava (the hard green kind, sort of like apples), and mango (when in season). Plus plenty of bananas of different types – we have our own banana and papaya trees too – easy to grow.

        Our vegetable garden also provides a lot of health nutrition. Many healthy veg choices at open-air market too, provided by small vendors who are growers or buy straight from the growers.

      • c_heale says:

        We’re not going to have the energy or resources to build sufficient “harvesting bots” much longer.

        We’ve built an incredibly complex system based on diminishing resources. When those resources decrease, the system will break down. After it’s been down for a few years, it won’t be repairable.

  24. CuiBono says:

    My startup business is seeking an office excess-space opportunity.

    I find this trend inspiring, although my specific interest is in locations of nearby upper-middle class (by income, perception, or status) populations.

    I have found the greatest opportunity for startups during recessions, mainly because the price of lease, the price of personnel, and the competitions pullback in essential expenses, in particular marketing.

  25. Michael Engel says:

    7) him: one of my family member is a ceo of a co employing 160 programmers, adding more.

    • Cobalt Programmer says:

      My granpa claims he once dated “Hanoi Hannah” (or was she Axis Sally I cant remember). Another uncle was a part of Godfather’s crew (the movie not the real guy). Even one time, my dad’s friend claimed a President’s muse worked under him. I own stocks of a software company that is the largest software company. I even met a Nobel Laureate once. He discovered that….

  26. AB says:

    All rhetorical: How many coders work for unprofitable companies? How many unprofitable companies have axed office space, under a generally accepted pandemic-related pretext, in an attempt to avoid becoming even more unprofitable? How many unprofitable companies remain unprofitable after axing office space?

    I doubt this is a culture war occurring in unprofitable companies. The office dump appears mutually beneficial at this moment in time.

    I’m not clear how nascent (definitely unprofitable) companies that “require all hands to huddle endlessly” can readily attract talent to the office.

    My best guess is that WFH has made inefficient companies, surviving on easy-money subsidies, even more inefficient.

    Productivity assessments between WFH and WFO are likely better evidenced by the actions of profitable companies.

  27. I appreciate this site – one of my favorites but this article leaves out one critical piece and focuses on the worst of the worst markets for it: BAD LEADERSHIP MAKING BAD POLICY.

    “All real estate is local”. It is just the opposite in the Sunbelt where taxes are lower and government did not lock down their states and cities.

    The Miami, Dallas, Austin, Phoenix office markets are on fire with massive new towers being built. They are the beneficiaries of keeping their states open. Even downtown Lansing, the state capital, has gone from bad to worse and can be included with the San Frans, Chicago’s and NYCs of the world.

    Here are just a few examples of massive new office buildings being built in the Sunbelt which is “Open for Business”:

    • Wolf Richter says:

      “The Miami, Dallas, Austin, Phoenix office markets are on fire with massive new towers being built.”

      Hahahaha, these IDIOTS are STILL building towers???? What kind of BS are you trying to tell us???

      Office vacancy rates (Savaills):

      Dallas: 28.5% (WORSE than San Francisco)
      Houston: 30.2% (WORSE than San Francisco)
      Phoenix: 24.4%
      Miami (South Florida): 19.4%
      Austin: 19.8%

      • CRE Office Broker says:

        Office market is a total bloodbath right now and wont get better – will only get worse as long term leases expire and companies downsize.
        That being said, its a ‘have’s’ and ‘have’s not’ world. Companies and are shrinking their footprint and moving to new buildings w/amenity bases. New buildings are thriving while older ones are dying a slow death. Using Phoenix as an example – Tempe is white hot – my guess is the suburban crap is dying on the vine.

  28. SpencerG says:

    It really is pretty hard to make a consistent buck in commercial Real Estate. Donald Trump has managed to do it TWICE… but the fact that he HAD to tells a large part of the story as well.

    I don’t think it is that commercial real estate is more difficult than other industries… it is just that getting the TIMING right is so very difficult. Three years ago would ANY of us have even believed that this article by John McNellis would be possible in 2022? At THAT point we seemed to be on the verge of a business upswing.

  29. Biorganic says:

    At what point does this cause the next Lehman?

    Commercial RE broker/owners with no tenants or declining occupancy desperate for a way out? Sells property at any price just to get some capital back out. Which further entremches Downward spiraling prices.

    And/Or same commercial RE company has excessive loans leveraged against inflated CRE assets, what happens when this gets called in/margined out?

    I think this whole deal has the potential to be the big pinpop to get this next down leg going, on top of continued interest rate increases and QT, doesn’t look good at all.

    BTFD, lol

  30. unamused says:

    “We’re not overbuilt, we’re under-demanded.”

    No, they’re overbuilt.

    They weren’t built to meet demand. They were built to have someplace for excess profits to go so the owners would have a physical asset on the books instead of just cash. Capitalism can oversupply anything, which is why the control of markets through monopolization and oligopolization is so important, and why consumers are encouraged to be wasteful.

    Supply-side economics has been a dismal failure for everybody but financiers, but that is another story and shall be told another time.

    Charming prose style, btw.

  31. Candyman says:

    Its all a conundrum. I get everyone wanting to wfh, but that leaves under demanded office buildings. If this reduces the value of a building, it’s assessment goes down….and city revenues…. And then what? Bankrupt cities? What programs get cut? Federal bailout? Which really will put more strain on the Federal budget. Higher taxes to everyone? This is not going to be pleasant.

  32. Synergy3000 says:

    Outsource to Mumbai? Maybe. BRICS alignment may change the whole ball game. After all how did the outsource to Russia thing workout recently?

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