'Desperate To Get Back To The Office': West Coast's Biggest Landlords On Remote Work Running Its Course
Allen Matkins' 13th annual View From the Top event took on a much different form from previous years, with last year's in-person discussions on the length of the economic expansion replaced in part by Monday afternoon's musings on when companies would return to their offices.
For this year's speakers, who included some of the West Coast's biggest office landlords and brokers, the answer to the latter is: whenever they possibly can.
Kilroy Realty Corp. Chairman and CEO John Kilroy, Boston Properties CEO Owen Thomas and TMG Partners Chairman and CEO Michael Covarrubias each spoke about the future of the office sector in their respective sessions.
Citing marketplace conditions, Boston Properties has paused its big speculative office developments at San Francisco's Fourth and Harrison and San Jose's Platform 16, but Thomas, like the event's other landlords, said the limitations of remote work are being felt even more as the coronavirus pandemic continues.
“In a funny way, I think the longer this pandemic goes on, the more it’s proving the importance of the in-person work environment,” he said.
Kilroy and Thomas, who said he does see remote work becoming somewhat more common, both said a demand for more space per worker will benefit office owners.
"We heard increasingly from employees of our customers that they just didn’t like the density that they were being put into, even before the pandemic," Thomas said. "And now with the pandemic and all the health-security concerns, there’s clearly going to be more spacing, even after the virus disappears, and I think that will be helpful for the office, net."
The office landlords largely agreed the office sector will bounce back once the economy reopens.
Covarrubias, who joined Thomas on a panel on threats facing commercial real estate after the pandemic, said remote work isn't much of one.
"I think if we had some of the FAANG guys [Facebook, Amazon, Apple, Netflix and Google] on this call and if they were willing to speak openly, my impression from that is that they are not very thrilled with the way [remote work] is going," he said. "I think their current analysis is it's not working."
For at least some tenants, though, it appears to still be working. And Twitter, which Covarrubias cited as an example of a company appearing to embrace remote work early in the pandemic, started listing more than 100K SF at its S.F. headquarters for sublease. Another example just this month is the Bay Area-based corporate card startup Brex, which told employees it is going "remote-first."
Speakers for both non-CRE companies featured in Monday's event, autonomous vehicle maker Cruise and ViacomCBS, said remote work is working well for parts of their companies. One is writing a remote work policy for its use at the company in the future.
"Probably less than 2% of our workforce worked remotely, and, even so, it was kind of unofficial," ViacomCBS Executive Vice President of Real Estate Ellen Albert said. "There was no companywide policy. We're now working on a policy."
Cruise Global Head of Real Estate and Facilities Sara Baldi said its pivot to remote work has been "surprisingly successful."
"Some of the groups that are used to a lot more in-person collaboration and whatnot might be struggling a little bit, but all in all, technically, it's worked well," she said. "A lot of the more heads-down functions and finance functions and whatnot actually are preferring it.
"I think people, now that they've sort of assimilated into it, have adjusted their lifestyles at home to support working from home."
The public market's real-time evaluations of the office sector indicate bearishness, some panelists pointed out. As of Monday, office REITs were down about 27% year-to-date, according to Nareit.
"The public markets are clearly questioning commercial real estate given the relative underperformance, particularly to the [Russell 2000 small-cap stock market index]," Eastdil Secured President Michael Van Konyenburg said during his economic presentation.
Thomas, too, touched on office REITs' poor performance despite rent collection only having dipped slightly when compared with other sectors. He attributed the drops to uncertainty.
"It’s been a pretty stable asset class, but in terms of the public market it’s traded way down, probably closer to retail and hotels, and that’s because of expectation concerns," he said.
Office landlords like Brindley said Monday many of those concerns will be put to bed once companies are allowed to and comfortable with returning to the office.
"There is no replacement for the office," Brindley said. "Ad hoc collaboration doesn’t occur when people are in disparate parts of the world trying to communicate.
"Certainly, there’s no mentorship and there’s no dissemination or reinforcement of the culture the company is trying to reinforce.”
Allen Matkins partner and Global Real Estate Group Chair Tony Natsis, himself a big believer that the sector will return for the irreplaceable in-person interaction it offers, moderated the event and said in an interview afterward that it will come back in person for much the same reason, though possibly infused with some remote attendance and participation in the future.
"We don’t see this as continuing in the virtual realm, as people look forward to networking at the event and appreciate how it brings the industry together," he said.