Hacker News Reader

>In the end it's more a financial thing IMO. When you just entered a 10 or 15 year lease right before Covid hit, you're now stuck with paying 7 years for an office you're not even using - that's objectively bad for any company's financials

That's the definition of the "sunk cost fallacy".

"Hey, I commited to paying for something I don't need. I better force and inconvenience myself to use it then, despite this not having ANY difference in my having to pay the amount anyway".

I think about this all the time. I cannot count how many times I've heard this narrative about RTO being driven by commercial property leases.

But I'm not sure it makes sense. Why is it that CEOs were totally fine saying "oops we done goofed and overhired, sorry gotta do some layoffs now" when post-pandemic inflation hit, but they're not comfortable altering or nuancing their strategy in response to what we learned about remote work during the pandemic?

I think this is a just-so story. There's more layers to this onion.

> I think this is a just-so story. There's more layers to this onion.

IMHO, all the amount of issues correlated with RTO are far more complex than an onion. I'd rather compare it with a wool cloth, everything is linked tightly with everything, and the tensions that came from Covid have left some parts permanently deformed.

it's a pithy, feel-good explanation that lets the anti-RTO camp feel superior without having to delve into complex topics such as talent development, informal learning, meeting effectiveness, etc. that do not trivially lend themselves to the RTO argument in quite the same way.

Corps didn’t delve into that nuance with the switch to open office so I wouldn’t pretend that this is some data driven decision.

100%. When the alternate to remote is a return to hodge hodge seating in an open floor plan - or worse, hoteling in an open floor plan.. its all theatre.

Seating staff level engineers next to the desktop support row, or C-suite admin row, and other loud areas with no virtuous "informal learning" overlap was the norm at my last company.

You also get to sit near idiots who want to debate politics all day or talk about the latest TV shows and sportsball. A day in the office without top of the line noise cancelling headphones is essentially a negative productivity day.

CEOs want to treat many of us like cattle into pens.

"Oops, we dun' goofed, gotta lay people off" is an expression of power in the hands of the CEOs.

Altering their plans on RTO to fit the needs of the workers is an expression of power in the hands of those workers.

First: It's a power issue. Employment is at will so ceos feel they have more power (or at least leverage) and can say they're firing ypu for a reason. Leases have the power with the landlords so ceos feel they need to be more circumpect. Second: it's a positioning issue. Ceos are usually thinking about their next gig. Layoffs because we overhired: agressive, good ceoing. Too much real estate: bad ceoing, doesn't look great on the next job search.

Absolutely a power issue. My current employer has been reasonably lenient on RTO, however..

They periodically keep asking people to come in more while actually not even having enough desks in 2 of our major offices.

The desk shortage is bad enough you have to beg for consultant desks and every couple months we get a mass mail ordering everyone to stay home next week to accommodate some visitors.

So on the face of it, would seem that our company is at full utilization of office space given COVID era remote hiring & hoteling, and yet they still want to nag. They really just want employees in "how high sir?" mode, with tears in our eyes.

I don't quite think this falls into the fallacy part, though it's definitely a sunk cost.

If companies don't have any financially viable ways to offload the real estate costs they have to weigh the pros and cons. Remote work comes with its own expenses, from software licenses only needed for remote teams to home office stipends and team off sites. None of these are required obviously, but expected by most remote workers in large tech companies.

I expect it turns into a bit of an actuarial process, trying to estimate how many quality employees you will lose versus the additional expense and potential inefficiencies of remote.

Theres also the fact that this is a perfect excuse to cut a number of employees without officially doing layoffs. If you over hired for a few years while the money rolled in you might be happy for an excuse to see people leave.

A business is stuck paying for that lease regardless of how many butts are in seats in it. That is a fixed sunk cost they can't do anything about.

However, every employee not in the office isn't using office pens, putting wear on office furniture that will need replacement, filling office trash cans that need to be emptied by someone, burning out office light fixtures that need to be replaced, and using office toilet paper that will need replenishment.

Bringing them back to the office doesn't make the lease any cheaper, but it does make operating the space more expensive.

>A business is stuck paying for that lease regardless of how many butts are in seats in it. That is a fixed sunk cost they can't do anything about.

There's usually a break lease clause in most contracts, no? I would imagine breaking leases is pretty common in business real estate.

In many cases, yes, and in that case it would make more sense to break the lease than to bring employees back to the office.

From what I've read the majority of commercial leases do not have anything covering breaking the lease, so it defaults to whatever state law says happens when there is no prior agreement.

That commonly says that (1) the landlord must try to find another tenant, and (2) the leaving tenant has to continue paying until that happens or they reach the end of the lease.

Trying to find another tenant does not mean that the landlord has to take any extraordinary actions to do so. They just have to list the property as available and show it to people who show interest, just like they would with any other empty property they have.

Thus, it comes down to what the market is like. E.g., when I moved from Seattle I broke a lease, but my apartment was next to the University of Washington. There are always people looking for apartments next to UW so the landlord easily found another tenant.

A lot of cities right now have a glut of commercial office space available, with listings staying open for months or years. Someone breaking a lease on office space in such a city would likely finding themselves having to pay to the end of lease.

Exactly. Continuing with the lease would be a classic case of sunk cost fallacy.

Also I've heard many stories of people leveraging return to office policies for raises. If an important and productive team-member says "cover my increased costs or I'm leaving" then most managers who have the discretion to pay that person more will. Managers don't want their good employees to quit. Maybe large corporations aren't taking that cost into account, but they probably should.

Ultimately though, I suspect return-to-office policies are not driven by current financials at all. They're driven by the emotions of senior management. Probably a combination of feelings - concern that they can't see their employees, fear (whether founded or not) that remote work is less productive, fear that some employees are doing no work and getting away with it, desire to impress someone higher up the tree who cares about presenteeism - just the usual stuff that drives big corporate decision making.

> you're now stuck with paying 7 years for an office you're not even using - that's objectively bad for any company's financials (and in some cases, bonuses for decisionmakers tied to stuff like "cost per employee").

If your goal is to force employees to come back, and many of them quit as a result, now you don't have employees to fill your empty office with and you still owe the same money for the lease. It doesn't take a rocket surgeon to see that coming.

> when people demand fast Internet at their homes to work efficiently or utilize other stuff such as water, electricity or trash more (because they'd have to expand their long-outdated, barely adequate service), utility providers have to invest serious amounts of money. Car insurances tied to distance driven per year lose money.

Sorry, what? The water company is hurting because I flush the toilet a couple extra times a day on one side of town instead of the other? What extra garage am I producing sitting in my office? An extra wrapper from some lunch? The power that they use in the office almost certainly comes from exactly the same source as the power used by your home.

And the whole point of pay-by-the-mile insurance is that you get it because you don't drive very much and want to save money. The insurance companies that don't get paid more when you drive more are the ones that hurt, because you're more likely to get in an accident and you're not paying extra.

None of these "side industries" are hurting, and they probably haven't even noticed.

> The water company is hurting because I flush the toilet a couple extra times a day on one side of town instead of the other? What extra garage am I producing sitting in my office? An extra wrapper from some lunch? The power that they use in the office almost certainly comes from exactly the same source as the power used by your home.

The problem is usage patterns. Residential, sparsely populated districts have lower diameter water mains and sewage pipes, lower electricity feed capacity, small garbage cans with (bi-)weekly pickup, and often times not even enough Internet uplink for people to watch Netflix in decent quality.

High density office districts are the exact opposite, and utilities make quite the amount of money on them.

But usually people are either at home or at the office at the same time. So if the pipes can handle everyone being at home when they get up in the morning and shower at the same time to make the office at the same time, they could probably handle everyone being at home at noon. It might even be better, since now they can shower at different times. Ditto for electric, since people are more likely to stagger their laundry and whatnot.

The only one that seems to apply is garbage, and possibly the internet pipes.

> The problem is usage patterns. Residential, sparsely populated districts have lower diameter water mains and sewage pipes, lower electricity feed capacity, small garbage cans with (bi-)weekly pickup

Do you think the weekends don't exist?

So you're saying we should lower the quality of our life so we can protect the interests and assets of the wealthy?

Fuck that shit.

We've been let out of the cage that we didn't even realize we were in. Now we know. We're not going back.

> So you're saying we should lower the quality of our life so we can protect the interests and assets of the wealthy?

I think the last sentence of my post should show what my opinion on this entire matter is. I merely wanted to provide a more detailed explanation than "CEOs be power trippin'" on why we're seeing so much RTO bullshit being pushed the last months.

While all these theories sound plausible, you have to keep in mind that Microsoft does not have an RTO policy. Their campus is 20 minutes from Amazon.

They also have a recently completed a decade long reconstruction of their campus, and yet no RTO. So what gives?

The campus reconstruction isn’t finished yet. I’m certainly curious what will happen when it is.

It’s mostly done. You can work in several of the buildings, and the restaurants are doing practice runs and training. Free meals last week if you time it right.

It's funny how "very overinflated prices are going just slighly less overinflated" is a catastrophy... Less renters? Lower the price. Many people would like to live in <popular city>, but not at the over inflated pre-covid prices. Commercial realestate? Louis Rossmann has a whole series of videos on youtube about the overinflated mess in NYC. Less traffic jams? How is that bad? Utilities are paid by (water, power,...) usage, and upgrades will be done where there is usage, even "at homes". Car insurances with less distance per year will also pay out less damages, since less distance == less crashes.

> Less renters? Lower the price.

That's my point: they can't, not with the financing options they have. REIT are virtually stuck.

Not that I care much, I just wanted to offer a consolidated explanation for the whole RTO push crap of the last months.

There are some American nuances here, although that's 100% relevant for Amazon, I have to put here that some of that business models do not exist in Europe.

Stuff mentioned is chiefly state or city owned in Europe and works in different ways. There are no toll booths outside of motorways, the roads are free. People commute by public transport, which is mostly not private. Utilities also; although open market exists, it's always the main company (in most cases owned by country) and alternatives.

In my area 15 y.o business space lease doesn't exist. My family company had a 5 year lease contract in the 90s. Nowadays owners want even lesser contracts because the property market is very volatile and prices tend to surge up and not down. This creates problems for normal living space rental, because most of people do not want long term tenants. They want to raise the price every year.

Although these kind of models suffer losses in quarantine, they don't suffer managerial loss of profit and they don't have same goals. The point of a city owned bus transport company is to exist and provide decent service for lowest amount of money. There is not a "this is not feasible for me anymore, not bringing enough profit" situation.

> There are no toll booths outside of motorways, the roads are free. People commute by public transport, which is mostly not private.

Note, I'm German (living in Munich) myself, but most of the problems are valid here just as well. Public transport for example... the Deutsche Bahn, Berlin's BVG or Munich's MVG, they all have complained that they continued service during covid at a ridiculous expense and didn't get reimbursed for a large part of the expense, and on top of that now the Deutschlandticket is cutting into income even more.

There are no toll booths outside of motorways

I know of lots of European cities where you have to pay to drive into the city.

People commute by public transport

Again, while less common than in the US, commuting by car is incredibly common in Europe as well. I can see one of the main roads into my city from my window and it is bumper to bumper traffic every morning and afternoon.

Probably city car congestion fees.

Can you give me example of private highways (like in Texas) in EU? Is it even possible for a private entity to gather land and build road in Europe? As far as I followed (no expert on the topic), it's always state that buys land and then gives concession to the private operator, that's sometimes done for motorways.

Yes commuting by car is common worldwide but there are no megapolises in Europe that have acute public transport issues, example L.A. area.

Nothing is absolute of course, but EU is far more friendly towards non-car usage than USA. You can set a range between best and worst. Worst would be rural mid America and Balkan/eastern parts of the EU, where you need a vehicle 100% if you want to be on time on destination. Best part of the EU would probably be Benelux where you can move with train/bike combination seamlessly everywhere. That part has no analogy in USA.

> In the end it's more a financial thing IMO. When you just entered a 10 or 15 year lease right before Covid hit, you're now stuck with paying 7 years for an office you're not even using - that's objectively bad for any company's financials

Amazon is a different beast - as they're more like Walmart and less like Google and Apple.

The rest of the big tech companies people actually want to make at have ~40% profit margins, and <5% of expenses come from office space. If their offices are underutilized by 50% - that's a rounding error.

And beside Microsoft - basically none of the big tech companies have anywhere near enough space.

You've got people make $800k with less space than people who work in universities making $30k.

The way you describe it it sounds like one big ponzi scheme.

"We bought offices so we must fill them up so the value of our offices doesn't go down."

> When you just entered a 10 or 15 year lease right before Covid hit, you're now stuck with paying 7 years for an office you're not even using

Is that not a sunk cost? From here:

https://en.wikipedia.org/wiki/Sunk_cost

I got:

The bygones principle does not always accord with real-world behavior. Sunk costs often influence people's decisions, with people believing that investments (i.e., sunk costs) justify further expenditures. People demonstrate "a greater tendency to continue an endeavor once an investment in money, effort, or time has been made". This is the sunk cost fallacy, and such behavior may be described as "throwing good money after bad", while refusing to succumb to what may be described as "cutting one's losses".

Yes, it's absolutely a sunk cost.

Which doesn't mean some companies won't fall into the fallacy, but it's not likely to be the primary reason for RTO.

If you imagine talented employees leaving as a cost (a pretty obvious consequence in the current market) it fits.

Everything you have pointed out is a direct result of car centric transportation in America and underscores the bad city design.

> When you just entered a 10 or 15 year lease right before Covid hit, you're now stuck with paying 7 years for an office you're not even using

This is priced in. The “cost per employee” metric you cite or hypothesize will stay the same regardless of whether it’s used or not. Also companies that do use this metric for bonuses are outdated. As such this is a “me” problem.

> other side of rentals, the entire REIT industry, has it even worse, they're in pure panic mode:

They wouldn’t be in “panic mode” if American cities weren’t built with these mono-zones, single purpose use (ie, “commercial only” zones, “resident only” zones, SFH only zones).

> enough, cities also have a problem... when people don't commute by car, they don't pay road tolls

Cities don’t give a shit about whether or not you take toll roads. That money is sent to the toll operator which is often sent to the state OR a private entity. Not using local road infrastructure is actually a benefit as maintenance is reduced and city workers can focus on other items. City can also defer replacing expensive local roads for just a bit longer.

> When they don't commute by public transport and don't pay subscription tickets any more, the transport authorities get into financial trouble

I guess people only take the bus for getting to and from work… For everything else, TAKE THE CAR!!1

Sadly, for many Americans this is a reality.

Again, this is a direct result of poorly designed cities around car centric transportation. Cars as the only means for getting groceries, getting to/from entertainment districts, general living.

> When storefronts of bakeries, coffee shops and other ancilliary services for office drones get boarded up as no one is in the office any more to buy all that stuff, blight sets in.

Wouldn’t be a problem in a mixed-zoned region. Walkability is key.

> when people demand fast Internet at their homes to work efficiently or utilize other stuff such as water, electricity or trash more (because they'd have to expand their long-outdated, barely adequate service), utility providers have to invest serious amounts of money.

Urban density is what pays for a large portion of these services. It’s when cities are forced to increase coverage for suburban and low density areas is where it begins to fall apart. This has been happening for decades and long before the “remote worker” demand.

Again highlighting here that car centric transportation is the main cause for these race to build suburbs. Heavily subsidized highway infrastructure is fueling the demand.

> Car insurances tied to distance driven per year lose money

This is not an issue. As a matter of fact, insurance companies hope you drive less. This deceases the likelihood of an accident and thus having to pay out. It’s when they payout claims is when they lose money. Otherwise the premiums they collects is essentially “free money”

Its just a economic bubble then, just one made of inefficiency and cultural bias... an now it popped

They can sub lease it out to some bum on seats call centre like company.