Yahoo Finance speaks with Mark Gibson, JLL Capital Markets Americas CEO, about how companies are starting to rethink remote work.
ZACK GUZMAN: Welcome back. I want to spotlight the real estate report we have on our hands here as we all-- maybe not all of us, but a large percentage of us continue to work from home, myself included. Of course, many tech companies led the work-from-home pivot. We saw that last year, including the likes of Google, which was among the first companies to say it would be working from home at least until summer of 2021. Then you had Pinterest paying millions of dollars to end its own office lease.
And all of that is racking up to be quite a blow to office space in San Francisco, for example. The city's office vacancy rate reaching 16.7% at the end of last year. That was up 11 percentage points from the year prior according to commercial real estate brokerage Cushman & Wakefield. And that's higher than the aftermath of the Great Recession. Of course, we're dealing with very different circumstances than back then, but it doesn't necessarily show right now any signs of improving.
So what's the state of all that beyond San Francisco and across the country? Joining us now for more on that is our next guest, JLL Capital Markets CEO Americas Mark Gibson joins us now, alongside Yahoo Finance's Jen Rogers as well.
And Mark, I mean, obviously that's playing out there. San Francisco, very tech heavy, so we're seeing that. But what are you seeing when it comes to maybe the idea of work from home staying here for longer across the country?
MARK GIBSON: Well, Zack, it's interesting that you mention the tech companies. If you really look at the consumption of office space in 2020, the technology companies have actually been some of the largest consumers of space around. So it's a little bit of an interesting dichotomy when you speak specifically of San Francisco, but you look at other areas of the country where the technology industry has taken quite a bit of space.
But I would step back a minute in terms of office leasing and look at a couple of things. One is this was caused by a health issue. And once this health issue is conquered, or mitigated in some fashion, you have most companies in the US that believe while we have been able to do reasonably well in a work-from-home environment in terms of maintaining the status quo or treading water, so to speak, in order to grow and really compete effectively, creating new products takes collaboration, teamwork, culture, retention of employees. It's going to be important to get people back in the office.
Now, I do think that is going to be somewhat different between industries. So some industries can work very effectively in a remote environment, and others really can't if you want to grow and compete in the marketplace. Perhaps a question on that front is when you really think about both external competition and some of your competitors going back to office or back to work in some form or fashion. And you also think about internal competition, in terms of career advancement, and networking, and various other things. It'll be interesting to see how this plays out over.
What I do believe is interesting is when we think about the flexibility that work from home could offer, I believe that will keep more people maybe in the workforce longer, given commute times could be mitigated and having a balance between the two for certain industries. In certain industries maybe that won't be as available, but in others I think it's going to be a welcome addition of flexibility to the workforce.
JEN ROGERS: I think flexibility is a great word. And there are a lot of employees who at the beginning, it was a time of crisis, but kind of happy to be home and forget the commute. I mean, I'd love to see Zack in person, but I don't really want to take the subway for 40 minutes.
Maybe there is a hybrid situation, which I think is what a lot of people believe is going to happen. But in a hybrid, what happens to these footprints? Are they going to be reduced? Especially, I mean, Zack brought up what's happening in San Francisco. New York City is not much better, a 15.1% vacancy rate. I mean, that's a lot of empty space. Is it going to stay that way? Do we need to rightsize ourselves?
MARK GIBSON: I think that is a really-- I think that is the question. Again, so it's a really good one to ask.
Let me step back one more time and talk about trends or existing pre-COVID. So already before COVID had hit, companies we're looking at dedensification, meaning having more office space per employee, because we got a little too compact. And it began to affect productivity in many industries and in many layouts within an office building. So you already had dedensification occurring.
If you look at work from home and the offset of dedensification, there's going to be-- theoretically, if you just look at the math, there could be a slight decline in the office demand arena, but it doesn't account for growth. So net net, depending upon, again, how important mentoring, and training, and networking, and creating collaboratively together within a culture emerges from COVID, we think it's at least a net neutral in the work from home and dedensification and growth components to slight growth. It will depend a lot on economic activity going forward.
JEN ROGERS: So you're down in Texas. It turns out there's a lot of companies going there, specifically from California. We've got Oracle, HPE. You're going to get the world's richest man. So a lot of people are leaving California.
Do you think that big cities like San Francisco or like New York are toast? That everyone's going to go to these-- sorry to say-- it's like Dallas, a second-tier city, but everyone's going to go there.
MARK GIBSON: So again, going pre-COVID, trends were already in place where you had employers relocating out of certain municipalities and to certain other states and municipalities. And it evolved around affordability, quality of life, less regulatory impact, taxation policies. So there were quite a bit of these factors in play pre-COVID. It's just accelerated post-COVID.
I would caution soundbites along the lines of what we were just chatting about relative to New York and San Francisco and some of the other gateways, because that really never happens over time. So in the temper of the moment, the temper of the times, it could be an interesting soundbite.
But when you look back to various events that have happened, the Great Recession, or 9/11, or whatever it may be, you have the same questions being asked in those time frames. And both cities did extraordinarily well in recovery.
ZACK GUZMAN: Yeah.
MARK GIBSON: It might take a little longer, but I think really many of the trends that you were just referencing were existing pre-COVID for all the reasons that we just chatted about. They just were accelerated during COVID.
ZACK GUZMAN: It's a good point to end on as we come full circle there. As you said, we're seeing drop-offs in San Francisco and New York, but could potentially see rebounds as well.
And Jen, just to stress the point, Dallas is great down here. We've got a lot of good things going for us.
But I appreciate you coming on here, Mark Gibson JLL Capital Markets CEO Americas alongside Jen Rogers. Thanks again, guys. Appreciate that.