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Real Estate Reckoning or Renaissance: Which Will It Be?


Downtown office buildings
Image: 昊 周 -
While we can’t say with 100% certainty how the future of work post-pandemic will shake out, the window workplace leaders have to prepare seems to be closing quickly. For many companies, that means it’s do or die time for making decisions about the physical office.
On one hand, many large enterprises have sat on their property, waited, and now are paying the price. Over the last year, for example, San Francisco technology companies racked up over a billion dollars in real estate impairments, meaning the fair market value of their office is less than the carrying value on the company's balance sheet, CNBC reported. Among the largest amounts are Dropbox’s $416 million, Salesforce’s $216 million, and Airbnb’s $149 million impairments. In addition, CNBC reported, available subleases in San Francisco have tripled since the pandemic, and there are little signs of a change.
With such numbers, some workplaces are rethinking how they are moving forward. With only 25% of their employees expected to return to the office, analytic company Cloudera, which took an impairment charge last year of $35.8 million, is one example, CNBC reported. “Our footprint will shrink over time,” Mick Hollison, Cloudera president, said in a CNBC interview.
While some workplaces are being bold in shrinking their physical footprint, others are taking the opposite approach, either doubling down on their physical commitments or speeding up their return-to-office strategies. Last month, I discussed Amazon’s $2.5 billion commitment to create its second headquarters, brushing aside any concerns that the investment would be for naught in the post-COVID world.
Similarly, many companies are focusing on providing workplace flexibility and making minimal or no changes to their physical footprint. Earlier this month, Google announced further flexibility for their employees, allowing them to choose where they work or whether to continue working from home, as reported in Inc. However, Google reportedly expects that 20% of its employees will remain remote, and those who choose in-office working will start doing so in the fall.
With this range of responses to the returning (or not) to the office, it might be hard to pinpoint exactly what the future of work will look like and how it might impact corporate real estate footprints. However, two things seem to be clear at this point. The predictions of the complete end of the physical office forever have largely been proven untrue. On the flip side, more employees will be working from home than before the pandemic, which could change how workplaces address their real estate needs.
For workplace leaders who have been on the fence on what to do with their own real estate, the timeframe to figure that out is shrinking. In a recent WorkSpace Connect article, I toyed with the idea of simply waiting around to figure out hybrid work. But what I failed to bring up in that article is the cost of inaction, possibly millions of dollars for the large enterprises that are just sitting on office space. Additionally, if you are committed to physical, there is a cost to inaction in the form of time — time that can be used to prepare spaces, equip employees, and ensure a smooth transition back to in-office working.
Certainly, a lot can change between now and September (the time frame many companies expect a more widespread return), but the lesson learned from the pandemic are setting in stone. So, I suggest take those lessons learned, assess your real estate needs, and start planning (if you haven’t already).