Jane Fraser, CEO of Citigroup, understands how inflation and high living costs make it difficult for her employees. To alleviate the financial burden on workers, she is considering the positive impact suburban office locations would have on her staff.
At a House Financial Services Committee hearing last month, Fraser empathized with her staff, “We very much appreciate how expensive it is getting for all our people to commute.” The chief executive continued, “We’re very mindful around that, as well as being flexible for working families, and providing them more options. Additional facilities and spaces for them to work, either at home or in New Jersey or Connecticut, are certainly things we’ve been looking at actively in the Tri-State area.”
The statement was in response to Rep. Josh Gottheimer (D-NJ), who is working toward offering tax incentives for New York businesses that open offices in New Jersey to help improve the quality of life for workers.
According to the Wall Street Journal, Singapore’s sovereign-wealth fund, along with other high-profile investors, is investing in suburban office buildings with the goal of suburban offices playing a bigger role in the future of work.
Bloomberg also reported major corporations are leaving Chicago due to high crime rates and taxes. United Airlines will move around 1,300 workers out of its Chicago-based Willis Tower headquarters to the suburbs. Ken Griffin, the billionaire hedge fund operator of Citadel, is relocating his company to Miami. Airplane manufacturer Boeing is also leaving the city for Arlington, Virginia. Additionally, Caterpillar is relocating its home office to Texas. Tyson Foods plans on relocating 1,000 corporate positions from Chicago to its headquarters in Springdale, Arkansas.
Meta Walks Away From A $110 Million Lease
In a shock to the real estate market in Manhattan, Meta, the parent company of Facebook, WhatsApp and Instagram, is walking away from a $110 million lease for 200,000 square foot property on Park Avenue. This is a big red flag signaling that the heady days of tech giants splurging small fortunes on lush office space with amazing amenities and offering workers top pay packages may be over.
The social media giant also has plans to reduce its real estate footprint in San Francisco, as workers demand remote work and the company is enacting a hiring freeze and downsizing. Meta will change the layouts of the office space by placing desks and teams closer together, in an effort to make the space feel more lively.
Moving Out Of Large Cities Is A Huge Cost Saver
There is a binary fight between workers who want to remain remote and the bosses who want them to return to an office five days a week. This tug of war has massive consequences for real estate in big cities, like New York, Chicago and San Francisco, and what the prevalent future of work will look like.
In a recent KPMG survey of CEOs, more than 90% of executives feel that a recession will occur within the next 12 months. The vast majority feel that the recession will be difficult, with only around 34% believing the upcoming rescission will be brief and not too painful.
Due to runaway inflation, a possible economic crisis and recession, CFOs are cutting costs, which includes reducing their real estate footprint, according to new research from IWG, the largest flexible work-sharing-space provider. The CFOs also self-reported that they also plan to enact layoffs, hold off on promotions and implement hiring freezes, in light of the uncertain future.
The Big Apple may face difficulties, as remote workers are pushing back on going back to work in an office building. It’s estimated that major office buildings may lose $50 billion if this trend continues. The National Bureau of Economic Research shows that property values of office buildings in New York fell around 45 % in 2020 and are forecasted to stay at about 39% less than the pre-pandemic levels.
In the first week following Labor Day, office usage in 10 major metro areas neared 50% of 2020’s pre-pandemic attendance, according to Kastle Systems, a key-card property management company that tracks entries into office buildings. There were more workers in the office that week than there have been since the pandemic started. However, in-office attendance is still lower than it was before the virus outbreak.
The Hybrid Option
IWG’s study indicates that pursuing a hybrid work model may be a financially prudent way of balancing saving money and appeasing employees since they won’t be required to always be in an office setting.
In a wide-ranging conversation with IWG CEO Mark Dixon, he contends that companies need good reasons to make it attractive to return to an office. He suggests that buildings can be retrofitted to make it inviting for people to come into the office to socialize, brainstorm, meet with clients and catch up with new developments. The offices could offer some of the amenities and perks that tech companies, such as Google, use to entice workers to come into the office, as it’s better than being stuck in a cramped apartment alone.
Dixon believes that the sweet spot could be in offering alluring co-working spaces in the suburbs. It would thread the needle between making it easy to travel only about 15 minutes or so to an office instead of schlepping three hours round trip in a major city. The commuting costs and wear and tear on the body and mind would be considerably lessened by only a short trip to work. A co-working space offers respite from the monotony of being at home or the arduous trek back and forth into a crowded, dirty and oftentimes violent city.
Fewer people commuting would greatly benefit the environment. Additionally, your mental health and emotional well-being would improve without the stress of a long commute. There is also the opportunity to work out of different locations across the world to spice things up.
Source: Forbes
