America has $20 trillion worth of commercial property. The Green Street Commercial Property Price Index, a leading indicator, is down 15% in a year across the sector, with the biggest falls in urban office values, where space stands empty as working from home takes permanent hold.
Institutional investors are shunning real estate for higher yields at lower risk on government bonds. That leaves lending banks, especially US regionals but also some foreign ones, allegedly including Deutsche, dangerously exposed. Martin Vander Weyer of the Spectator’s Another Business column says the next banking calamity will be all about old-fashioned office blocks.
I am reminded of a webinar hosted by Randstad a couple of years ago on The Death of the Office with Rory Sutherland, the vice-chairman of Ogilvy Group UK.
Sutherland said we had “made exceptional non-medical discoveries during lockdown” as the pandemic gave us all an external jolt to network technologies like Zoom. By being forced to adapt simultaneously, meant we discovered “forms of collective behaviour which might never have emerged independently”. He was an early convert to video-conferencing, but even he was astounded at the extent to which the world can function remotely.
He thought that we would come to look back at commuting and endless slews of physical meetings as a time-consuming and costly ritual undertaken in the bizarre belief that the world would end if people no longer performed it.
Even then, he forecast that organisations were likely to need less square footage as people worked remotely more often. But he also predicted that, in the future, the style of an organisation’s office, quite apart from its size, would also have to change – that “the nature and the design of the office would change as the workplace starts to compete with the benefits of working from home”. He thought demand for super-premium, high-end office space may rise. As employees no longer feel the need to be confined to their workplaces, any employer who wants to retain their staff won’t be able to mandate five days in an office.
He also thought that demand for average, boring office-space was likely to fall away. More specifically, he said he thought we might see the death of the open-plan office. “Open-plan offices are terrible environments for introverts – who hate the noise – and for extroverts, who don’t feel able to have genuine conversations for fear of annoying colleagues,” he said. “Open plan offices also drive up the use of email – and emails can be sent from anywhere. Workspaces will bifurcate into places that are genuinely sociable places – facilitating conversation, generating serendipitous encounters, and helping teams celebrate – and libraries where people can work in perfect peace.”
He must be feeling very smug seeing those commercial property prices now.
