Office buildings may not be dead, but their revival could be a ways off. According to a new forecast from Cushman & Wakefield (NYSE: CWK), it will likely take a good five years for employees to return to office buildings in full force. And that's bad news for commercial landlords who risk dangerous vacancy levels between now and 2025.
A mixed bag
On one hand, the notion employees won't return to the office at pre-pandemic levels until 2025 is a devastating blow. But the fact a full recovery is expected is encouraging.
Since March, many big-name companies have moved their workforces out of the office and into a remote setup. For many, things are going well -- so much so that there's fear corporations will opt to retain remote staff long term and downsize their office space as a result.
But ultimately, office buildings are unlikely to die out for a number of reasons. First, many employees are already getting work-from-home fatigue, itching to return to a setting where they can collaborate with their colleagues in person. Secondly, while employees may be learning how to stay productive in a remote setting, plenty of employers believe face-to-face interactions ultimately produce the best results and will seek to return to a traditional office setup as soon as it becomes safe to do so. JPMorgan Chase (NYSE: JPM), for example, already asked employees to return to the office by late September, and other big firms are similarly requesting workers without health issues or childcare constraints go a similar route.
Furthermore, companies that adopt remote work permanently may do so on a hybrid basis, where employees do their jobs from home part of the week and spend their remaining workdays in an office. And while a hybrid model may allow for less office space, it still hinges on having a physical office to go to.
Furthermore, some major players in the corporate world are already investing in office space. Amazon (NASDAQ: AMZN) recently purchased the old Lord & Taylor building in Manhattan for $1 billion and plans to bring much of its corporate workforce there. As such, commercial landlords may not be doomed -- they just need to find a way to sit tight and ride out the current storm.
Landlords are getting creative -- and desperate
Of course, 2025 is hardly right around the corner, and commercial landlords can only afford so many vacancies over the next half-decade. Some are already offering concessions, like free rent and improvement allowances, in an attempt to attract new tenants while encouraging current ones to re-sign leases.
Granted, these same landlords may be hurting their own bottom line in the process, but a temporary revenue hit is far better than long-term financial ruin. Many landlords aren't in a position to hang tight until 2025 and hope for the best, so those who are going out of their way to entice tenants may be saving their businesses in the long run.