Filip De Mott of Markets Insider reports on a Goldman Sachs estimate that shows vacant office space will increase by 267M square feet over the next decade, and the largest chunk of office lease renewals will start in 2030. The report says that remote work will stabilize at about 20-25% of the workforce in the long term.
Source: Market Insider (September 2023)
“The forecast comes as some high-profile companies start taking a harder line on remote work. Through August, firms such as Meta and Goldman Sachs have issued strict return-to-office mandates with threats to track performance or even terminate employees who don’t turn up in the office often enough. Even video-conferencing company Zoom, which is a key enabler of remote work, has asked some employees to come back to the office regularly.”
Cadie Thompson of Business Insider reports on additional Goldman Sachs news that the company has asked employees to return to the office full-time, 5 days a week. This comes amidst a cooling labor market, which gives employers like Goldman more leverage to hire those who are willing to return to the office.
Taylor Telford of the Washington Post highlights additional remote work news, noting that Zoom and Meta have moved to a more aggressive return-to-work tone. Zoom, for instance, asked employees who live within 50 miles of a Zoom office to come to work at least twice per week. Meta has also told employees they could be fired if they do not return to work at least three days a week starting this month.
Telford notes that “[t]he new pushes for in-person work mark a major shift as executives directly acknowledge the challenges with the model — in some cases saying productivity has declined, and citing fewer opportunities for spontaneous collaboration, mentorship and connection-building.”
Annie Palmer of CNBC reports on Amazon’s back-to-work plans, highlighting that a new relocation policy mandates some employees move to a central Amazon hub to be closer to their teams. These new guidelines note that remote workers are expected to move to a main hub by the first half of 2024. Palmer reports that some employees are choosing to quit rather than face relocation.
“Amazon spokesperson Rob Munoz confirmed the relocation policy, and said it affects a small percentage of the company’s workforce. The e-commerce giant said hub locations vary by team, and each team determines which locations are their hub. The company does provide relocation benefits to employees asked to move.”
Dry powder
According to Jack Rogers of Globe St, $205 billion of institutional capital is waiting on the sidelines to jump on distressed commercial real estate deals. This money is waiting another 6-12 months, looking for a bottom in commercial real estate prices. Since their peaks in 2022, overall commercial prices have dropped 16% and are expected to drop even more in the short term.
Highlighting the distress being sought after by investors is a second report highlighted by Rogers from Newmark that projected that about $626B of an estimated $1.4T in commercial loans coming due between 2023 and 2024 are “potentially troubled.”
Candace Carlisle of CoStar gives an example of private equity giant TPG, which is sitting on $6B of dry powder to be opportunistic over the coming year. Carlisle quotes TPG CEO Jon Winkelried as saying: “The significant market dislocation is creating unique opportunities for us to acquire high-quality assets that rarely become available for sale. Our pipeline continues to build as we source investments across numerous geographies and within attractive subsectors such as life sciences, data centers, industrial and student housing.”
Dylan Thomas and Annie Sabater of S&P Global report that global private equity is sitting on $2.49 trillion in dry powder, representing an 11% increase in July 2023 from December 2022. This comes amidst sluggish dealmaking, which limits capital deployment opportunities.
On the family office side, Elaine Misonzhnik of Wealth Management notes that they have “amassed a significant amount of dry powder since the pandemic and had yet to deploy it in many cases. Meanwhile, an inflationary environment and an anticipated increase in distressed situations are making it attractive to step up their real estate investments.”
Housing prices
The CoreLogic S&P Case-Shiller Index released its monthly housing price data last week, showing that home price growth continues to decelerate but shows signs of resiliency amidst low supply. Chief Economist at CoreLogic, Selma Hepp, highlights that price gains will reaccelerate to reach a mid-single-digit growth rate before the end of 2023.
Source: CoreLogic (September 2023)
Dana Anderson of Redfin reports on housing prices, noting that they are up almost 5% year-over-year to $380,000 due to a lack of supply and higher interest rates. This is the largest price increase seen in 10 months. The Miami metro saw the largest price increase at 17% year-over-year.
Source: Redfin (September 2023)
“Home prices are rising due to a severe inventory shortage: The total number of U.S. homes for sale is down 19%, the biggest drop since February 2022, and new listings are down 10%. Supply is low because homeowners are hanging onto their low mortgage rates; nearly all homeowners have a rate below 6%, and rates are now hovering around 7%. The lack of homes for sale is causing competition for desirable homes despite high mortgage rates and a relatively small pool of buyers. Pending sales declined 14% year over year and mortgage-purchase applications declined 27%, hovering near their lowest level in about 30 years.”
Diana Olick of CNBC reports on Black Knight data showing that home prices hit another all-time high in July 2023, increasing 2.3% year-over-year. That said, gains fell below their 25-year average during this busy homebuying season. According to Olick, “[i]t’s a signal that a slowdown in prices may be underway again.”
