Category: Workplace Return

The Roundtable wrote to President Joe Biden on Dec. 12 about the ongoing, harmful economic impacts of widespread remote work on cities, local tax bases, and small businesses—and how work-from-home policies by federal agencies threaten to magnify these negative economic and social consequences. (Roundtable letter | GlobeSt and CoStar, Dec. 15) 

Roundtable Requests 

• The letter from Real Estate Roundtable Chair John Fish and President & CEO Jeff DeBoer urges 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.”

• The federal government maintains facilities in 2,200 communities, influencing local leasing activities, property values, and surrounding small businesses. Cities may continue to struggle if federal agencies encourage their employees to work-from-home on a permanent basis. Unfortunately, some federal officials view agency remote work simply as a recruiting tool or cost-saving measure. [Office of Personnel Management testimony, Future of Federal Work Part II, before House Committee on Oversight and Reform (July 21, 2022), and OPM’s Future of Work FAQ]
• The Roundtable letter notes that federal agencies’ actions to emphasize the benefits of permanent remote work differ from the current direction of private sector employers, who are increasingly recognizing the need to bring employees back to the workplace.
• The Roundtable comments also encourage President Biden to support legislation that could help facilitate “the increased conversion of underutilized office and other commercial real estate to much-needed housing.” The letter states that incentives for conversion projects could be modeled on the rehabilitation tax credit as a cost-effective means to increase the housing supply, create jobs, and boost the local tax base. 

Economic Impact of Remote Work 

• The work-from-home trend poses a threat to local tax bases and community services, according to research by organizations such as the Pew Charitable Trust. (Pew State Fiscal Health Initiative, Feb. 22)
• The economic threat posed by remote work to municipalities was also a focus of a Dec. 13 Wall Street Journal report—“Shrinking Office Building Values Are Becoming a Dilemma for City Budgets.” 

Roundtable Members in the News 

• Roundtable Chair John Fish (Chairman and CEO, SUFFOLK) spoke with Bloomberg Intelligence on Dec. 9 about the consequences of rising interest rates, the impact of remote work, labor force participation, and the general economic outlook. (Chair Fish interview begins at 26:05)
• Former Roundtable Chair Bill Rudin (Co-Chairman & CEO, Rudin Management Company, Inc.) discussed real estate challenges and the potential for office-to-residential conversions in New York City on Dec. 14 during an interview with CNBC’s Squawk on the Street.
• Roundtable Board Member Kathleen McCarthy (Global Co-Head of Blackstone Real Estate) was interviewed on Dec. 9 by Bloomberg Radio on a wide range of real estate investment issues, asset types, and her experience in the industry. 

Commercial real estate trends and potential policy responses will be discussed during The Roundtable’s Jan. 24-25 State of the Industry Meeting in Washington, DC.

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The Roundtable’s Q4 Economic Sentiment Index released this month noted the influence of hybrid work arrangements on the office market. (News Release and Entire Q4 Report, Nov. 18) 

Roundtable View 

• Roundtable President and CEO Jeffrey DeBoer commented, “We continue to urge policymakers and business leaders to push for the safe return of workers to their shared, physical workspace,” DeBoer said. (Connect CRE, Nov. 22 and CoStar, Nov. 21)
• He added, “A back-to-the-workplace movement would increase overall economic productivity and competitiveness, help preserve urban small businesses, and lower the threat to the property tax base of municipalities throughout the nation.” (News Release and Entire Q4 Report, Nov. 18) 

National Vacancy Rates 

• Recent industry reports show hybrid work arrangements are contributing to increased office vacancy rates nationwide and threatening the health and well-being of American cities. 

• A national report issued this month by CommercialEdge shows that large swaths of companies that have embraced remote and hybrid work since the onset of the pandemic have influenced the current decrease in demand for office space in most markets. (Commercial Observer, Nov. 21)
• CommercialEdge reports U.S. vacancy rates rose over the previous 12 months in 86 of 120 markets, including 22 of the 25 leading office markets. (National Office Report webpage and pdf, Nov. 2022)
• CommercialEdge Senior Manager Peter Kolaczynski stated in the report, “Work-from-home solidifying itself, plus broader economic uncertainty, are set to continue the stress on the office industry as we enter the new year.” 

Risks to Local Tax Revenue 

• In Washington, DC, office owners alerted city officials this week that a dramatic and persistent decline in commuter activity—exacerbated by remote work—has contributed to deteriorating market conditions. The landlords warned that DC may face a significant loss of tax revenue that could threaten the city’s fiscal health, and that other cities are experiencing similar conditions. (Commercial Observer, Nov. 29 and Bisnow, Nov. 28) 

• Prominent DC office landlords sent a letter on Monday to the city’s chief financial officer about eroding local market conditions, including increased vacancy rates, lackluster leasing activity, equity flight, and a financing drought—especially for assets with high levels of vacancy. “The pandemic and work from home have further eroded fundamentals and all indicators of the health of the District’s office market point increased systemic risk and distress,” the letter states.
   
• “For every decline of $100 million in commercial property tax assessments, annual property tax revenue falls by $2 million. It is vitally important for city officials to fully comprehend the difficult environment commercial office buildings are operating under and the risks to the future tax revenue,” the letter noted. 

Signatories to the Nov. 28 letter—including Carr Properties, JBG Smith, Boston Properties, Brookfield, Trammel Crow and Hines—offered to work with DC officials to discuss potential means of addressing “this enormous challenge.” 

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