A Perfect Storm
After the Broncos game I googled "why is there so much office vacancy"
I know... Pandemic / work-from-home, etc. There's no question that much has changed but that isn't a satisfactory answer.
Because of my location I was reminded that when Silicon Valley Bank failed, it left a 200,000 square foot hole in Tempe's office space. That can happen but that hardly answers the question.
NPR had a good discussion with Cushman & Wakefield's David Smith
Quote:
The high rate of vacancy is about more than just the shift to a work-from-home culture because of the COVID-19 pandemic, according to David Smith, the head of Americas Insights at Cushman & Wakefield, who authored the study.
"It's really four factors over the last few years that have impacted office occupancy," he told NPR. "One is we've had a lot of economic uncertainty going back to 2020 and early 2021 and then, again, certainly over the last year as interest rates have risen."
Smith also factors in remote and hybrid work, the surplus of new constructions that are more appealing to office seekers and a pivot to subleased space to help offset the costs of owning office real estate.
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Smith has the fix according to Smith
Quote:
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"One is we expect to see job growth accelerate when we head into 2025 and beyond and that office-using industries in particular will take up a disproportionate share of new jobs that are created," he said.
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Perhaps he's right but color me skeptical and I've got my own take (sort of).
All of our lives are driven or wrapped by tech applications.
Monopoly Concentration
Over time companies like Microsoft, Google, Amazon AWS, Oracle and Salesforce now control so much of the needed tech functions that it's crowding out the need for fresh innovation.
There are specific software needs and some companies that may now serve different industries whether automotive, insurance, medical, financial etc that (again) it's getting harder for new or smaller companies to compete.
It's like "Boiling a Frog" - a metaphor that describes how people can be unaware of gradual changes that build up over time.
You go back 10-15 years and the economy was a tech driven machine on steroids. Venture Capitol kept throwing money at potentially the next big Unicorn idea. Have we reached a point where the opportunities are no longer out there. Of course there will always be 'some' innovation especially at the margin.
Is it possible that we no longer need the number of workers to fill office space aside from the traditional lawyers, accountants etc but because of tech maybe we won't need as many of those?
While the frog was cooking so was the economy going back 10-15 years and the demand for new office buildings kept growing and growing.
Then the Pandemic happened and in addition to what Smith points out above, it became a time of reflection and asking what and how much space do we really need in our 'new economy.' Maybe not as much as everybody thought.
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