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Is Remote Work a "Bunch of Bullsh*t"?

The fad is crushing American office real estate valuations but is benefiting Latin America's commercial real estate. Stubbornly low office occupancy rates in America have decimated office valuations. New office leases are being signed for 30% less space, and valuations have lost nearly 50% of their value compared to before the lockdowns.



In the major cities, only about half of workers have returned to the office, and in tech job heavy cities the figure is closer to 35%. Manhattan had 21.6% of its offices vacant in 2022, up from only 1.4% before the lockdowns.


Office REITs in America have been less impacted, for now. They have prime properties which have benefited from tenants deciding to downgrade their size requirement and upgrade to a more desirable building and area. The REITs have long term leases locked-in, from creditworthy tenants, which aren’t up for renewal until 2027 and beyond.


 
Pushback from bosses

Business executives and government leaders, who see first hand the destructive nature of remote work on company valuations and urban core vitality, have spoken out.

  • Jamie Diamond of J.P. Morgan expressed doubts about the ability of remote work to grow young talent and that the two-tier office structures would disfavor those opting to not join their colleagues in the office.

  • NYC Mayor Adams pleaded with Wall Street to make workers return to the office, and required it for city workers.

  • Reed Hastings of Netflix proclaimed the he doesn’t “…see any positives [of remote work]. Not being able to get together in person, particularly internationally, is a pure negative.”

  • Sam Zell weighed in calling remote work a “bunch of bullshit”.

From left to right: Sam Zell, Mayor Adams, Reed Hastings, Jamie Diamond

The insistence some young workers make to work remotely is shortsighted and a miscalculation. They are sacrificing a better future for an easier present. Does any great hero’s journey follow that storyline? They are losing opportunities to be mentored and learn from experienced colleagues, to foster friendships, develop interpersonal skills in a business environment, and to be promoted. Their future bosses are in the office toiling away, and they aren’t impressed.

 
Remote workers are losing ground

The great resignation scared many executives from taking firm stands against remote work. Far too many human resource departments are out of touch, and many out of control. Global business leadership is on the decline and high-quality leaders simply aren’t being promoted or are choosing to throw in the white towel and do their own thing. Work cultures formerly characterized as dynamic and excellent, are now burdened by compliance, and heavy handed social policies wanting to be all things to all people.


That’s how we got here, but where are we going?


In San Jose (CA), a tech hub, 15% of jobs posted on job boards were remote in February, down from 20% in December. Average occupancy in ten American cities was at 50.1% in March, up from 47.5% in September. The current economic malaise is likely to accelerate the already in process movement away from remote work and return to the baseline.



❓ What % of the recent waves of layoffs included remote workers?


❓ Is it easier to fire someone you rarely see in person?


❓ Could a football team coached through Zoom win the world cup?


❓ Are you more likely to entrust and promote someone you see frequently?

 
Impact on Latin America

Remote work, as its known in America, is not a “thing” in Latin America. Yes, some workers are permitted to work remotely, but it’s generally part of a flex-time arrangement between the employer and employee, with the employer calling the shots. At the height of the global lockdowns, Brazil never had more than 11% of its workforce working remotely. In Argentina, estimates are that 9% work remotely, with only 4% of salaried workers being extended the privilege.

The regional rates of remote work might be overstated due to the inclusion of remote work jobs outsourced to Latin America from Spain and America, the two most popular sources of remote jobs in the region. These supposed remote working jobs are more correctly seen as outsourced jobs (e.g., BPOs) and don’t reflect on the region’s corporate internal remote work rates and standards.

Latin American economies, and real estate, will continue to benefit from the remote work standards being imposed in Western countries. For example:

  • Business Process Outsourcers (“BPO”) are booming in the region. They often have high headcounts and office requirements, and they make fantastic tenants.

  • More remote jobs are being migrated to lower cost areas and Latin America is participating. The increases in spending power positively impacts on all real estate sectors.

  • Digital nomads are flocking to Latin America and spending their dollars in the region. 30% of digital nomads now choose a country in Latin America to live and work, up from 3% before the lockdowns. Mexico City is a popular destination which I’ve previously discussed.

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