Here's How Much Office Users Worldwide May Shrink Their Footprints

Office landlords everywhere have had to consider for months the possibility that their tenants may never return at the level they occupied before the outbreak of the coronavirus pandemic, but the scale of the problem could confirm some of their worst fears.

One out of every eight companies worldwide that held an earnings call between July 21 and Dec. 8 publicly discussed shrinking their real estate footprint, according to a machine learning model that scoured the transcripts of 4,767 such earnings calls created and reported by Bloomberg. Due to the automated nature of the process, Bloomberg acknowledged the possibility that the true number of companies considering real estate pullback could be higher.

In addition to the study of earnings calls, Bloomberg cited an October survey by the U.K.'s Institute of Directors, a trade organization for high-level executives, which found that over half of respondents plan to permanently shrink their real estate footprints. Once some companies found the results of working from home satisfactory, real estate became a fixed cost that didn't have a direct enough impact on the bottom line for financial officers to justify.

Chicago-based executive search firm Heidrick & Struggles will be shrinking its footprint to "match the new normal," Chief Financial Officer Mark Harris said on the company's Q3 earnings call. Heidrick & Struggles has offices in 50 cities, mostly in core downtown product that is the most likely asset class to be owned by institutional investors, and anticipates losing as much as 50% of its square footage across its portfolio.

The effects of a broad real estate pullback for office users could reach beyond the market, as a Fidelity International analyst told Bloomberg. One of the primary sources of capital for core office product is pension funds, so if the value of such buildings plummets, the retirement income of, say, California's public school teachers is jeopardized.

The issue extends beyond offices as well. Financial information giant S&P Global anticipates consolidating its data center usage; senior housing operator Brookdale Senior Living has already negotiated rent discounts that amounted to $500M in savings and several regional and international banks are planning to drastically cut back on retail branches, accelerating a pre-pandemic trend.

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