{"id":7458,"date":"2023-05-11T17:29:01","date_gmt":"2023-05-11T21:29:01","guid":{"rendered":"https:\/\/ifintechworld.com\/news\/1-5-billion-square-feet-of-office-space-could-become-obsolete-says-boston-consulting-group\/"},"modified":"2023-05-11T17:29:02","modified_gmt":"2023-05-11T21:29:02","slug":"1-5-billion-square-feet-of-office-space-could-become-obsolete-says-boston-consulting-group","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=7458","title":{"rendered":"\u20181.5 billion square feet of office space could become obsolete,\u2019 says Boston Consulting Group"},"content":{"rendered":"
\n

The pandemic normalized work from home. But many companies have permanently gone remote, putting the pressure on office spaces across the U.S.<\/p>\n

That post-pandemic pivot has sent office real estate into a downward spiral. The drop in demand for office space is turning up the heat for many office landlords as their buildings face the risk of becoming \u201czombies,\u201d according to a new report from Boston Consulting Group released on Thursday.<\/p>\n

\n

Many office spaces are at risk of becoming obsolete due to low use, high levels of vacancy, and their financial viability is \u201cquickly slipping away,\u201d the report said. Rising interest rates and the need to refinance trillions of dollars of maturing debt in the next few years will also add a layer of uncertainty and possibly even lead to \u201ca wave of defaults,\u201d the company said, and lenders could become owners of office buildings.<\/p>\n

Boston Consulting Group estimated that 60% to 65% of current U.S. office space will not be needed. \u201cThat means about 1.5 billion square feet of office space could become obsolete, which would translate into $40 billion to $60 billion of lost revenue for building owners,\u201d the report said.<\/p>\n

Office spaces are already on the path to extinction<\/strong><\/h4>\n

Big office landlords are already seeing a drop in cash flow, according to Barclays
\n BCS,
\n -0.90%<\/bg-quote>
\n researchers. Based on first-quarter earnings reports, net operating income fell year-over-year at half of the 18 public real-estate investment trusts that are focused on office buildings.\u00a0<\/p>\n

And the amount of office space that\u2019s available to be leased is climbing. In Manhattan, roughly 94 million square footage is available for lease, which is a record, according to separate research by Colliers. <\/p>\n

Vacancy rates have barely increased since the pandemic ended, and utilization has fallen, the Boston Consulting Group said. Leases are also becoming an issue: Before the pandemic, the average corporate lease was between 5 to 10 years, the company noted, but most leases at present are less than 5 years. \u201cAs a result, 60% of office leases are set to expire in the next three years,\u201d the company stated.<\/p>\n

Winners and losers<\/strong> in the office real-estate space<\/h4>\n

To be clear, not all of that office space will become vacant and unused. Landlords may offer concessions like months of free rent to keep tenants happy and committed to their leases, the Boston Consulting Group added. In fact, it\u2019s even possible that rents of offices downtown will drop so far that companies that were once \u201cpriced out of those areas\u201d may come back, they added.<\/p>\n

The winners among offices would most likely be those rich with amenities, in attractive locations near mass transit and good restaurants and other services, the report stated.\u00a0<\/p>\n

The \u201czombies\u201d are likely to be concentrated in big cities, the Boston Consulting Group said, including New York, San Francisco, and Washington D.C. \u201cCities with a higher concentration of office buildings than residential and retail, and those whose economies rely on industries amenable to remote work (technology and finance, for example), face greater exposure and risks,\u201d the report said.<\/p>\n

In addition, \u201cgateway cities that experienced some of the heaviest inflows of investor capital over the past decade \u2014 and that witnessed record-breaking office building valuations as a result \u2014 will be hardest hit,\u201d the report added.<\/p>\n

The tech sector in particular has been a main driver of growth for office landlords, a separate report from Savills, a U.K.-based real-estate company, found. Tech companies leased more than one-fifth of U.S. office spaces over 20,000 square feet between the first quarter of 2020 and the last quarter of 2021, as seen in the chart below. But leasing by tech companies has fallen to just 7.8% in the first quarter of 2023.<\/p>\n

Government revenue impacted by decline in office real-estate<\/strong><\/h4>\n

Ultimately, a decline in commercial real-estate also affects the government.<\/p>\n

When commercial landlords lose money, that also impacts the public sector. In New York, property taxes on buildings supply about a third of the city\u2019s revenue, with 40% of that coming from commercial buildings, a separate report from the New York Times noted.<\/p>\n

The latest report from Boston Consulting Group estimated that a drop in revenue will also result in lower property taxes and public-transit revenue of between $15 billion to $25 billion nationally. Sales tax is also expected to see a drop.<\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

The pandemic normalized work from home. But many companies have permanently gone remote, putting the pressure on office spaces across the U.S. That post-pandemic pivot has sent office real estate into a downward spiral. The drop in demand for office space is turning up the heat for many office landlords as their buildings face the […]<\/p>\n","protected":false},"author":1,"featured_media":7459,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[236],"tags":[83],"class_list":["post-7458","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-news","tag-featured","post_format-post-format-gallery"],"yoast_head":"\n\u20181.5 billion square feet of office space could become obsolete,\u2019 says Boston Consulting Group | iFintechWorld<\/title>\n<meta name=\"description\" content=\"The pandemic normalized work from home. 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