[ghaff]

I don't actually believe in the whole commercial real estate conspiracy. The employers who actually have the agency here are presumably mostly not so stupid as to be making decisions based on (often relatively short-term) sunk costs.

But if those same employers are OK with employees who want to and can productively work from home, they're also justified in largely ignoring the preferences of employees who would prefer a bustling in-person office.

[adam_arthur]

Most employers don't own any real estate at all... they lease it. It's extremely uncommon for companies not directly in the business of Real Estate to own their own buildings... there's probably some single digit % of office space owned by the company occupying it.

There may be an incentive for executives tied to local real estate, though. e.g. owning a home in the Bay Area, and seeing it get devalued as everyone is moving away. Residential prices have been falling in the Bay Area... but then NYC has been pretty stable and there's still an urge for BTO there among the banks. Finance is much more relationship driven than Tech, though.

[oceanplexian]

The companies I worked for in San Francisco signed like 10 year leases for premium real estate in the city (millions per year). Before COVID it was a “sure thing” that prices would only go up, incentivizing longer and longer leases.

I suspect this is the real reason big companies are so incessant about RTO. They have to stay or breach the contract which would cost a ridiculous sum of money. Funny enough I’ve observed the exact same behavior when buying colo space or circuits in a datacenter. The previous person would sign a 10yr contact and act like we saved a ton of money, then we’d be stuck paying $10,000/mo for a 100Mb internet connection long after prices dropped an order of magnitude. Unfortunately there is no requirement for critical thinking skills to sign a contract.

[singleshot_]

It’s a little astonishing that so many companies reacted to “we made our own lives difficult by signing a contract for a thing that, it turns out, we don’t need” with “we can solve the problem by deeply annoying a lot of our employees.”

I know it’s a little more complicated than this, and I know there are jobs with Reasons to be in the office (I enjoy one) but still… now you have TWO problems.

[adam_arthur]

I have noticed this as well, companies leaning on the sunk cost fallacy to feel more comfortable throwing away the rent by having the office occupied. In the end its much better for companies if office rents fall substantially, so why fight it?

In general there tend to be conventions around lease durations, and in a hot market you don’t have much bargaining power to change the terms. The better the tenant, the more leverage you have though.

In general the risks of locking into long duration contracts needs to be weighed carefully, as we saw with SVB

[bugglebeetle]

It’s not so much about individual investments, but how commercial real estate sits as an asset class in wealthy people’s portfolios generally. There’s no scenario where a 2008 for commercial real estate doesn’t cost them a lot of money, so it’s in their material interest to push for back to office.

[function_seven]

> It’s not so much about individual investments, but how commercial real estate sits as an asset class in wealthy people’s portfolios generally.

Those same individuals also own companies that pay rent, and so also have an incentive to reduce the amount of money spent on that.

I don't think anyone in the managerial class is looking at their E-Trade asset mix, and deciding that they should change company policy to protect their investments. One decision at one company isn't going to move the needle one iota. And even if it did, it would move another needle the other way (companies are tenants, not landlords).

Much easier to sell the real estate and purchase more shares in companies that were once tenants.

[bugglebeetle]

To whom would they sell this real estate in a tanking, high-interest rate market, exactly?

[JumpCrisscross]

> whom would they sell this real estate in a tanking, high-interest rate market, exactly

Anyone with the political connections to get a residential conversion approved. The wealthy elite are uniquely positioned to profit from this in a civically inactive and politically insular city like San Francisco.

[bugglebeetle]

Residential conversions are wildly expensive and frequently infeasible, so even assuming you have the political connections, the financing is going to be a challenge, and of course your end goal is to fill them with tenants in a down market for tech jobs.

Congratulations, you’re basically back to square one of filling empty real estate, now at additional cost. And thus why the incentives are to try and ride out the status quo by forcing people back into offices.

[simfree]

This really depends on the specific building. There are many office buildings that could have slapdash remodels done to make them habitable and revenue positive, and there is plentiful pent up demand for affordable rents in urban cores.

Nevermind the knock on effects of retaining and growing the on street retail base that has fled entirely commercial sections of many urban cores. You don't get a safe, friendly neighborhood when the streets are deserted every evening after 5:30pm.

[ghaff]

That's sufficiently indirect and diffuse that I don't really believe it. That's a bit like Amazon is a non-trivial part of my stock portfolio even through index funds so I'm going to make us go all-in on AWS for that reason (as opposed to other herd-following reasons that may be good or bad).

Especially among execs who have so much wealth that commercial real estate holdings, much less the ones they can directly influence, are in the noise.

[bugglebeetle]

An individual investor has nowhere near as much sway over masses of other people as the business owners we’re describing here, so this analogy doesn’t hold. If you could invest in Amazon while simultaneously forcing others to spend millions on their services, you probably would!