Remote Work to Wipe Out $800B from Office Values, McKinsey Says

This is what happens when urban planning goes wrong. In asian cities where most office buildings are zoned along with residential buildings and other types of buildings (shops, service providers etc) the office commercial property would just get converted to another type of commercial and possibly residential property and life moves on. An extreme example of this would be to have residential building type be almost identical to a commercial type which I have seen plenty of in south Asia. The problem in US is that when offices close down the entire city dies. The economic activity halves, it feels empty, creepy and unsafe. A lot of cities in the US exist to cater to the 9-5 office workers that relapse back to suburbs far from the city for anything other than work and some entertainment.

When something isn't needed, it tends to atrophy. It took us a long time to realize that offices are not needed when working only with information but it is undeniably the case.

You can argue that it is somehow better when everyone is typing on keyboards and exchanging air pressure fluctuations in close physical proximity but you cannot argue it is necessary. Furthermore you cannot make any conclusive claims regarding the relative effectiveness of WFH vs WFO. You can, on the other hand, conclusively make claims that commuting is time/energy consuming while largely being an externality for most companies (as they do not have to pay for roads, cars, time, ambulances, carbon emissions, etc.). You can also make conclusive claims regarding lease costs, building maintenance, etc. Offices are plainly irrational from a first principles perspective.

What amazes me is that we didn't see a faster cratering in value in office space.

On any given day in any capital city, perhaps 50% of office desks sit empty.

Yet I can't buy an office building for cents on the dollar.

Normally when supply far exceeds demand like this, companies owning those assets can't pay their bills, the building is sold, there are no buyers, auction prices crash, the crashing prices cause more companies to go underwater, those buildings are sold too, and there is a big wipeout of all leveraged property owners. Rent and purchase prices prices for office buildings fall 70%, encouraging other uses of the buildings (retail, residential, industrial), and they end up full again.

But for some reason that isn't happening. 3 years later, and still more office desks are empty than full in most capital cities.

Keep in mind, this is coming from the same firm who told AT&T in the 1980's that mobile phones would be a niche market with only 0.9 million subscribers.[a]

Truth is, no one knows with certainty whether office real-estate losses will be in the hundreds of billions or in the trillions of dollars.

And then, there's the question of indirect, non-real-estate financial losses -- for example, by downtown shops, restaurants, and other establishments that cannot survive if offices remain half-empty for much longer. The indirect, non-real-estate losses may well dwarf the direct ones!

All predictions about losses caused by remote work are little more than educated guesses at this point.

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[a] Sources:

http://www.economist.com/node/246152

https://dealbook.nytimes.com/2013/09/02/in-a-new-book-mckins...

http://www.dtic.upf.edu/%7Ealozano/innovation/

The building i currently live in is a 20+ storey apartment block that was made out of a converted office building built in the 60s. Given the housing prices in [checks notes] cities, it feels like a wave of residentializing is on the horizon.

This has taken such a long time to play out. It's been obvious to me since it became possible to physically move my computer out the office and take it home (c. 1990) that software development doesn't need to be done in a central building. Then when I worked in Silicon Valley in the late 90s, I did go into an office, but realized that 80% of the colleagues I interacted with were not in that office. They were either elsewhere on campus in other buildings, or in other countries. This, of course, facilitated by the internet that we were building at the time. So I moved to a location where I wanted to live, a long way from the office building. My employers' would ask that I travel to be "on site" from time to time. Fair enough, but after a few years of this I noticed that I was traveling to an empty office to have meetings where all the other participants were on the Polycom. So subsequently I only worked for clients who were mostly/fully remote. Next a pandemic, where everyone else adopts my work model. Everything's fine -- nobody is commuting and they can continue to do productive work while attending useless meetings remotely. Collaboration (aka "pair programming") is much easier thanks to remote screen sharing. Business relationships widen because nobody cares where anyone is located any more.

Heck, supposedly the personal computer was invented in a garage (not an expensive office).

I believe it. It's also going to lead to much more developed suburbs IMO. When you don't have to travel into a city, it's a much less compelling argument to live in one.

I think we're all going to find out that the inflated costs of living that are regularly discussed on here are more a result of people being forced to move to these cities than NIMBYism that's it has often been attributed too. Some people like the idea of moving for work, but I have to imagine that many would prefer to stay closer to their families. This only gets more pronounced when you have kids, especially young kids.

Every mainstream issue that is talked about from parental leave to child care cost is amplified because so many people have moved away from their own parents for work. My in-laws moved near us when our oldest was 7 years old and the before and after was life changing in how much easier it made everything.

I greatly prefer space and trees to the alternatives.

Aren’t we for reducing inequality and spreading the wealth?

The concentration of these massive amounts of wealth in Silicon Valley and NYC is the driver of a whole lot of pathologies from the high cost of housing to homelessness to gentrification of historical neighborhoods to the hollowing out of large portions of the United States.

Remote work has a chance to spread some of the wealth throughout the country and across different neighborhoods.

This wiping out of $800B from already wealth-concentrated areas is a good thing.

Can you call it value when it's fundamentally rent-seeking? This wasn't value created, it was value extracted.

I hate the framing of this. It's so click bait and sensational. Remote work isn't wiping it out. Decreased demand for office space, with a ton of supply on market, and owners wanting to make antiquated leasing agreements are ignoring the market/reality. They are refusing to adapt to modern needs are seeing easily anticipatable economic outcomes as the consequence. It's not simply "remote did this" when the problem is greedy investors can't cope and refactor. Their target market's core consumer (employees of their renters) have unequivocally made it clear they do not want to go into offices or be bound to failing cities just to please a company that will lay them off or not take care of them (use any of the dozens of reasons employees don't want to rto or be forcibly relocated anywhere). I don't feel a shred of pity for impacted businesses or investors if these offices just as I wouldn't feel sorry for an investment group pouring millions into horse infrastructure in the early days of the automobile.

Since the value was never created by the real estate investors themselves, honestly, who cares. Housing as a speculative asset is bad enough, let alone rewarding somebody trying to get rich off being a cubicle landlord.

Many city centers used to be a lot more varied and interesting (and depraved at nights) a few decades back. I guess its possible with falling rents they could become more interesting again.

"Remote work increases productivity by nearly a trillion dollars for businesses by reducing costly office space overhead costs" Should have been the title.

I've been working at an organization for 3 years that contracts McKinsey (and others, like BCG) frequently. Based on that experience, I automatically ignore everything coming out of these consultant companies.

It only took about two decades, I remember first hearing about WFH around the turn of the century

Good riddance IMO

"Value" in this context meaning "prospective source of money".

"Value" in normal context means something like "source of things that people actually want". If people choose not to use something the moment they have that option, then perhaps they never wanted it in the first place.

"Office value" has zero benefit for society. Offices take living space away and high valuation leads to overcrowding, high rents for startups.

The only people who want high office valuations are large real estate investors and hedge funds.

One man's value is another man's cost.

And therein lies the push from big companies to force back-to-office working.

I know from my previous company who are huge in the US who were very candid and honest about it saying they had signed several years worth of leasing and couldn't pull out of those contracts and basically the middle management didn't want to appear to have these expensive contracts on them when nobody was using the offices and the infrastructure that was also involved.

Good. Remote work leads to better distribution of wealth (w. r. t. geography). That's almost always a good thing.

I wonder who at McKinsey is studying both the tangible and intangible benefits of WFH.

Everyone keeps calling them offices, but I used to work in them and they felt a lot more like code factories to me. Good riddance.

Good bloody riddance, in my opinion... Letting the workers escape their jails has not caused the collapse of western civilisation. At least not yet...

Chump change compared to the lost productivity.

How many of those in SF, London, and NY were due to other issues such as company moving out of the city rather than WFH.

More discussion from when this was news only 2 weeks ago:

https://news.ycombinator.com/item?id=36704528

Given the scale of their claim, do they have anything to lose if this is completely wrong? Or if it turns out to add $800B in value to the economy? /rhetorical question

“Remote work saves businesses $800B.”

There, fixed it.

but how much more value does it bring to other places! It's a zero sum game, that money will go to boost other people's fortunes. It has helped the piece of mind of millions not to sit in traffic!

"Remote work risks wiping $800 billion"

No guesses which angle this is coming from.

"Attendance still is 30% lower than what it was before the pandemic and only 37% of people are back at the office every day."

And yet the world has not stopped. In fact everything seems to be going faster than ever.

Pretty hard to feel sorry for these guys.

They found a cheat code in capitalism and they're exploiting it.

* Landlord: "I didn't have to increase the rent but I did it anyway. " : iamatotalpieceofshit || https://www.reddit.com/r/iamatotalpieceofshit/comments/14xop...

I suggest a large reasoning: why big&powerful seems to want people back in offices? IMO the primary reason is their own economic model.

Office means city. City means services. Services means profit for those who run them. If inflation keep going and there is not much space for the New Deal in cities, too dense to change, people get poorer, so try cheaper solution, meaning owning less, witch indirectly means using more services. Let's say some try to go to smaller apartments, then they have not much space for keep foods and cook at home, not much space to washing clothes at home, and that means services. No cars? Well, collective transportation service (improperly named public, since they are private companies in most of the cases) are there. They start to be toll free? Oh, someone pay, it does not matter if it's the transported human or the State. The point is that the SOLE way to realistically reach the famous "in 2030 you'll own nothing" is pushing people to total poverty and doing so without massive revolt means substituting what people loose with something else, services. In cities people can be impoverished while kept calm giving "aids" and services. Once their are trapped is just a matter of time to pushing services economical entry barrier a bit higher and de-facto imposing jobs people's can't refuse to earn enough to pay for all the services they need.

If WFH became the norm, in the western countries where tertiary sector is largely dominating other jobs many people would go out of the city, looking for large homes in nice places, homes large enough to have a personal office per adult, at least, so they have also space for cars, for fridge, kitchen etc and since perhaps they are in an area not so well serving they would prefer some redundancy and they learn how to repair stuff and so on => they would value their properties and they do want to posses, not to lease, not to externalize, less services. Owning means also have valuable assets, witch means an economic reserve that allow for life changes without being so tied to a 24/7/365 jobs and services, they be less blackmailable than someone who own nothing and spend anything in services. Such ownership also means people less keen to relocate, witch means less easy reorganization of the society following some ruling class will.

Then the rest. If the home will be the center of so many people lives, homeservers will be the norm, personal desktops as well, far less mobile devices and own hw means "hey, but it's cheaper than the cloud" and so a certain mentality shift also in the IT world toward a more decentralized computing, like we had in the past.

Then large real estate owners who loose big money and so on, essentially MOST large big capitals will loose points. A middle class can flourish again.

So? Well, they likely prefer pushing people in offices, allowing only some, the most skilled and useful, to be outside the smart city.

No proof, but IMVHO that's what happening today.

Let’s fucking gooo

We've become more efficient as a society. We stopped wasting fuel, our time and wear and tear on cars. All that time and material can be spent on something productive.

Instead headlines tell about value of offices. Maybe that value was not real. It only existed because someone with power over employees could force them to waste resources. It's a market failure.

I refuse to be miserable in an office just for someone else's building value.

Alternative title by me: Remote work frees up $800b to be spent more effectively.

Costs will be appended to the workers. I hope we all realize someday how working from home applies further wear & tear to our amenities and homes compared to the office's. Think toilets, sinks, fridges, chairs, doors, floors, etc.

I fully advocate for WFH regardless and to even supplement with an option like DeskPass for those that want to take a break from home. But a portion of those former office costs should go to the workers.