Category: Workplace Return

Overall workplace occupancy registered 49.1% last week, according to Kastle’s 10-city Back to Work Barometer, which showed return to office rates vary significantly over the course of the week. Additionally, a recent Department of Labor American Time Use Survey showed that nearly 35% of Americans worked from home on an average day in 2022, down from nearly 40% in 2021. (Axios, June 23)

Public Sector

• In the public sector, federal government offices remain largely unoccupied, according to a new report issued by the Government Accountability Office (GAO) that revealed most agencies are using their headquarters less than a quarter of the time.
• The GAO report shows that 17 of 24 agencies’ buildings were at 25% capacity or less after an analysis of 21.5 million square feet (SF) of usable federal office space during three weeks of Q1.
• The empty federal offices have depressed local economies, according to a July 18 Federal News Network (FNN) broadcast. (Listen or read transcript of Federal Drive with Tom Temin)
• The House Subcommittee on Economic Development, Public Buildings, and Emergency Management addressed the GSA report in a July 13 hearing called “When the Lights Are On but No One’s Home: An Examination of Federal Office Space Utilization”)

Roundtable Response

• In April, The Real Estate Roundtable wrote to members of the Senate about the need the federal government to end its “active encouragement of remote working for federal employees” and for federal agencies to return to their pre-pandemic workplace practices. (RER letter to the Senate, April 12)
• Roundtable President and CEO Jeffrey DeBoer, above, sent a similar request to President Biden last December, noting that federal telework polices were ignoring “the negative impacts of remote work on cities and communities, labor productivity, and U.S. economic competitiveness, as well as the quality of government services.” (Commercial Observer, April 14 and RER letter to President Biden, Dec. 12, 2022).

A study released in May by New York University and Columbia University researchers shows how the disruption from remote work could impact municipalities. “The fiscal hole left by declining office and retail property tax revenues would need to be plugged by raising tax rates or cutting government spending. Both would affect the attractiveness of the city as a place of residence and work.” (Work From Home and the Office Real Estate Apocalypse, May 15 and Roundtable Weekly, May 26)

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An updated study released this month by New York University and Columbia University researchers concludes “remote work is shaping up to massively disrupt the value of commercial office real estate in the short and medium term.” (Work From Home and the Office Real Estate Apocalypse, May 15) 

Municipal Finances and Financial Stability 

• The researchers—Arpit Gupta, Vrinda Mittal, and Stijn Van Nieuwerburgh—find a $506.3 billion value destruction for the U.S. office market between 2019 and 2022. Post-pandemic hybrid work arrangements have led to large drops in lease revenue, occupancy, lease renewal rates, and market rents in the commercial office sector, according to the updated research, affecting CRE cash flow at a time when the Federal Reserve has aggressively raised interest rates. (Fortune, May 25)
• The report notes, “Higher quality buildings were buffered against these trends due to a flight to quality, while lower quality office is at risk of becoming a stranded asset. These valuation changes have repercussions for local public finances and financial stability.”
• The report also concludes that the fiscal hole left by declining office and retail property tax revenues may lead municipalities to increase taxes or cuts in spending—negatively affecting the attractiveness of cities as places to live and work, which may risk the activation of an “urban doom loop.” The authors note, “Future research should explore these implications and study the role for local and federal policy.” 

Moody’s Outlook 

• Moody’s Analytics Chief Economist Mark Zandi, above, noted in a series of tweets this week that CRE prices fell in the first quarter of 2023 for the first time in more than a decade, led by drops in multifamily residences and office buildings, according to Moody’s Repeat Sales Index. (Zandi will be a guest speaker at The Roundtable’s all-member Annual Meeting on June 13 in Washington, DC.)
• “Lots more price declines are coming with prices expected to be off 10% peak-to-trough by mid-decade. Demand for space is weak due to remote work and online retailing. Lots of multifamily units are being built. And credit to refinance and purchase properties is tough to get,” Zandi tweeted.
• Bloomberg reported on May 17 that Zandi noted if the US economy slips into a recession, the price declines could get worse. “We’re on a razor’s edge here,” Zandi said. 

Roundtable Request for Flexibility 

• The Real Estate Roundtable continues to emphasize the need for federal regulators to allow more flexibility for lenders and borrowers to restructure commercial real estate loans facing potential default—as the Federal Reserve reported recently that CRE poses a potential risk to financial stability. (Fed’s Financial Stability Report, May 2023)
• Real Estate Roundtable Chair John Fish, above, (Chairman and CEO, SUFFOLK) summarized the industry’s views in a May 9 MarketWatch article, noting that the Fed and regulatory agencies should grant more flexibility for borrowers, including corporate real estate developers, to restructure CRE loans. 

In addition to Mark Zandi and House Ways and Means Committee Chairman Jason Smith (R-MO), The Roundtable’s Annual Meeting next month will also include Sen. Kyrsten Sinema (I-AZ), Sen. Bill Hagerty (R-TN), and other policymakers. 

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The White House informed federal agencies yesterday that they have 30 days to develop plans to “substantially increase” their employees in-person work at headquarters. The new guidance is an important step forward that is supported by The Real Estate Roundtable, which sent letters to President Joe Biden in December and the Senate this week about the need to get more federal workers back to the workplace. (Commercial Observer and The Hill, April 14 | Roundtable Weekly and Letter to President Biden, Dec. 2022) 

Remote Work & Agency Policies  

• Office of Management and Budget (OMB) Deputy Director Jason Miller commented, “The guidance we are releasing today directs agencies to refresh their Work Environment plans and policies—with the general expectation that agency headquarters will continue to substantially increase in-person presence in the office—while also conducting regular assessments to determine what is working well, what is not, and what can be improved,” Miller wrote. (OMB blog post, April 13)
   
• The OMB guidance also informs federal agencies that the impact on local communities should be considered when determining future physical space requirements. The memo’s examples for measuring community needs includes the “location and use of agency-occupied office space and other real estate.” (Page 19, OMB guidance, April 13)
   
• The OMB memo to federal agencies comes after President Biden signed a bipartisan congressional resolution on April 10 that immediately ended the three-year Covid-19 national emergency declaration. Many of the two million civilian federal employees began working remotely after the original March 2020 declaration. (Reuters, April 13)
   
• A White House official told CNN, “To be clear, ending the National Emergency will not impact the planned wind-down of the Public Health Emergency on May 11.”

Impact on Communities & Real Estate 

• Roundtable President and CEO Jeffrey DeBoer, above, stated, “The OMB remote work guidance is a welcome step toward increasing in-person work by Federal Agency employees. Widespread Federal agency remote work was appropriate during the COVID-19 national emergency. With that emergency now officially behind us it is very appropriate that the Federal Government now asks its Agencies to refresh their remote work policies with an eye toward less remote work.”
   
• Roundtable Senior Vice President Ryan McCormick added, “However, welcome as this new guidance is, more concrete action may be required for the new guidance to have meaningful, positive impact on communities, small businesses, and the overall health of our nation’s cities. We look forward to understanding the true impact of the new guidance, and we will continue to offer positive insights into why strong workplace attendance is so important.” 

• In December, DeBoer and Real Estate Roundtable Chair John Fish (SUFFOLK Chairman & CEO) urged President Biden “to direct federal agencies to enhance their consideration of the impact of agency employee remote working on communities, surrounding small employers, transit systems, local tax bases and other important considerations.” (Roundtable letter, Dec. 12, 2022) 

• In January, DC Mayor Muriel Bowser reiterated The Roundtable’s views about the need to get more federal workers back to the workplace and convert underutilized commercial real estate spaces into affordable housing. (Roundtable Weekly, Jan. 6) 

Roundtable Calls for Senate Action 

• The Roundtable on Wednesday also called upon all U.S. Senators to suspend current federal telework rules and return agencies to their pre-pandemic workplace practices. (ConnectCRE, April 13 and Roundtable letter to the Senate)
• The April 12 letter explained how remote work is undermining the health of cities, local tax bases, and small businesses. The letter also notes that the vast majority of state and local governments, congressional offices, and private sector employers are instituting return-to-workplace policies.
• The House of Representatives recently passed legislation—the Stopping Home Office Work’s Unproductive Problems (SHOW UP) Act (H.R. 139)—that would require all federal agencies to revert to pre-pandemic telework office arrangements and allow employees 30 days to return to their offices. (GovExec, Feb. 1 and The Hill, Feb. 2)
• Last week, The Roundtable’s DeBoer commented on federal remote work and potential Senate action. “We’re trying to get Congress to pass a rule that will require the agencies to go back to pre-pandemic rules. Now, if they’re at home and they’re not downtown, the small businesses suffer, the transportation suffers, safety issues suffer, and the tax base suffers. And so we’re focused on getting people back to the office as much as possible.” (Walker Webcast, 32:58) 

The impact of return-to-the office on the industry, communities, and the economy will be a focus of discussion during The Roundtable’s April 24-25 Spring Meeting in Washington, DC. (Roundtable-level members only). 

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