74% of Fortune 500 CEOs expect to reduce office space
JPMorgan Chase CEO Jamie Dimon told shareholders this spring that post-pandemic his company would embrace a mix of in-person and remote work. Doing so, Dimon said, would “significantly reduce our need for real estate.” For every 100 JPMorgan staffers, he estimated, they would need just 60 desks.
Tech companies, like Facebook or Square, adopting remote or hybrid workplaces isn’t surprising. But old guard financial firms like JPMorgan announcing plans to cut back on office space seemed to spell very bad news for commercial real estate. To see just how bad things could get for office buildings, we conducted a poll of Fortune 500 chief executive officers last month.*
The finding? The worst is yet to come for commercial office space.
Among Fortune 500 CEOs, 73.6% say they will need less office space in the future. (That includes 51.4% who say a little less space, and 22.2% who say a lot less space.) Clearly, companies are eager to start scaling back on their commercial real estate expenses.
For much of the pandemic, central business districts in major cities were ghost towns. One might assume it would make commercial office space owners insolvent. Not really: They were protected by long leases, often in the five-year to 10-year ballpark. But 15 months into this crisis, it’s becoming pretty clear that post-pandemic work will require less office space than the pre-pandemic workplace. As those leases expire, expect some companies to walk. Industry experts say suburban back offices—not corporate HQs—are the most likely to be cut.
“As leases lapse over the coming year or two, we need to watch how companies renew their contracts. If we see a push to offload some square footage, as surveys suggest, landlords could feel the pinch. Segments of the office space remain an unknown risk to the economy,” Ali Wolf, chief economist at Zonda, tells Fortune.
This can only happen because corporations are increasingly on board with hybrid work. Over half of Fortune 500 CEOs say two or three days per week in the office is the ideal setup for “knowledge workers.” But being fully remote is unlikely: Only a small percentage (3%) say remote or one day per week in the office is the ideal setup.
Why the support for hybrid work? Employers that aren’t offering it are seeing considerable pushback. Look no further than Amazon, which earlier this month softened its back-to-work policies following staffer discontent. Post-pandemic, the e-commerce juggernaut will allow corporate employees to work from home two days per week, with up to four weeks per year of extra remote flex days. That policy shift by Amazon shows just how cautious employers are being as they bring back staffers. They are trying to prompt a return to normalcy without upsetting workers.
*Methodology: Fortune 500 CEO poll conducted May 3–14. A total of 72 Fortune 500 CEOs responded to the survey. (Our “corporate risk” question was provided by survey sponsor, Zurich North America Insurance).
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