Office occupancy reaching ‘new status quo’ as hybrid workdays remain relevant: Reporter
Axios Markets Reporter Emily Peck sits down with Yahoo Finance Live to break down plateauing office occupancy rates as work-from-home options continue to be prevalent, while also commenting on how Silicon Valley Bank attributed remote work as a business risk ahead of its collapse.
SEANA SMITH: The battle over remote work is having a huge impact on commercial real estate. Office vacancy levels are nearing their highest level that we've seen since the 1980s. This is all according to new data out from Moody's Analytics. And that's due to several factors, among them the rise in remote work and also this higher-interest-rate environment.
Let's talk about it with Emily Peck, Axios markets reporter. Emily, it's good to see you, and I know you've been digging into this report from Moody's. Just paint a clear picture for us. How dire is the situation right now within commercial real estate?
EMILY PECK: So I wouldn't say it's dire. Commercial real estate never gets to dire. It's been sort of this slow-moving crisis unfolding over the past one or two years where, you know, we're all working from home. I'm home right now. Companies need less office space. Offices-- vacancy rates are creeping up, and at the same time, interest rates are rising, making it harder for landlords to keep going. So we have seen a slight increase in some landlords, you know, defaulting, walking away from certain buildings.
DAVE BRIGGS: Are we seeing a plateau when it comes to the return to office, or is it still a moving target?
EMILY PECK: I think we're getting to a new status quo, a plateau, just like you said. In some cities, offices are about 50% of where they were before the pandemic, and those numbers really aren't going higher. So there's kind of like a-- there's basically a reckoning going on right now in the space. Everyone's coming to terms with the fact that, you know, there is no going back. Remote work is here to stay. Companies don't need as much office space as they used to.
DAVE BRIGGS: I'm going to challenge you on that, though. As we've seen the tech layoffs continue to build and build and a lot of those CEOs start, saying, hey, we want you back in office as this economy begins to sour and layoffs continue, don't you expect that number to continue to climb in terms of people coming back to the office?
EMILY PECK: I don't know that it's going to climb. I think the tech sector is unique, and we have seen companies call workers back, but it's not going back to five days a week. I think there's an expectation for hybrid work now, and that's the difference. I think you might see at the margins a creep up, but most of the people I'm talking to don't expect, you know, to go back to the days of 2019 when everyone was in the office every day of the week, maybe except for Friday.
SEANA SMITH: Emily, there was a piece in the "Financial Times", the "FT," over the weekend-- Got our attention. I know it got your attention as well-- linking SVB and the risks that they took in their portfolio to their work from home, their remote-work culture. And there was one Stanford professor quoted in this article saying that ideas like hedging interest rate risk often come up over lunch or in small meetings.
I'm having a very tough time linking these two. Help it make sense for me.
EMILY PECK: Yeah, that was a very specific quote. I'm not sure what to make of that either. I think the big-picture takeaway from SVB-- I mean, we know this bank failed for bigger-picture reasons because interest rates rose really quickly. They had too much long-term bonds on their balance sheet, et cetera.
Remote work more like a symptom than a core problem and an easy target for people to blame. And certainly Silicon Valley Bank was an outlier among other bank peers in that it was remote, touted its hybrid and remote work, like, on its recruitment site, which is really different from other banks. So when it's time to do the autopsy on the failure, it's sort of easy to point to that instead of blame management or other things, right? It's like, well, it's remote work's fault, surely. But I'm not sure-- I'm not sure if it really is.
SEANA SMITH: Yeah, I'm having a tough time buying that. But, Emily, do you see this at all impacting maybe how other banks operate if there are remote workers inside other banks? Obviously we know a lot of the larger banks have already brought back their employees to the office. Do you think more people within that sector are going to be forced back into the office?
EMILY PECK: Yeah, I think a story like this-- I mean, a lot of people read the "FT" story or my story in Axios. I think a story like this spreads really far and gives ammunition to managers and executives who want to call workers back.
I did hear from a few folks in banking that were like, why did you publish this story? My boss is just going to use it to make me come back in all the time.
SEANA SMITH: Yeah, certainly some questions about all of this. Well, Emily Peck, good to have you. Thanks so much.