/Google Postpones Employee Return till Mid 2021 as Office Buildings Remain Empty, Residential Delinquencies Soar

Google Postpones Employee Return till Mid 2021 as Office Buildings Remain Empty, Residential Delinquencies Soar

As Congress wrangles with its stimulus bill, more troubling Covid-19 data and factoids come in, such as a sharp rise in child hospitalizations in Florida. And more and more, they reveal a widening class divide. Even though the Wall Street Journal published a story last week where employers whined that they were getting less productivity out of now far-flung workers (erm, and why should having them work at home say up to 30 miles from office be less efficient than outsourcing to India?), it does not appear that many major employers will be arm-twisting workers to come back to the office any time soon. In other words, protecting yourself from disease via employer-sponsored hunkering at home is increasingly a luxury of symbol manipulators and knowledge workers. The rest are largely not fully employed or are taking health risks to earn a living.

The latest major sighting is Google’s announcement that it won’t be asking employees to come back to its campuses prior to July 2021. The Wall Street Journal attributes this decision in large measure to uncertainty about schooling:

Google will keep its employees home until at least next July, making the search-engine giant the first major U.S. corporation to formalize such an extended timetable in the face of the coronavirus pandemic….

[CEO] Mr. [Sundar] Pichai was swayed in part by sympathy for employees with families to plan for uncertain school years that may involve at-home instruction, depending on geography. It also frees staff to sign full-year leases elsewhere if they choose to move.

The comment about leases underscores a second issue: when Covid risk finally wanes, most employers will go back to the old normal. Execs feel more powerful and efficient when they manage by walking around and have in person meetings. And most people are extroverted and prefer being around people. But as we have said, that rollback looks to be a very long time coming. And business travel, will probably never revert to the old normal.

Needless to say, now that Google has thrown down a marker, other large companies have more license to follow suit.

Keeping highly paid workers at home, even in cities like New York City where Covid-19 risk has been tamed and mask-wearing discipline is high, does not bode well for the survival of restaurants and central-city small businesses. Again from the Journal:

In New York, fewer than one-tenth of Manhattan office workers are back to the workplace, a full month after the city gave businesses the green light to reoccupy buildings vacated in March.

“People are being rightfully careful,” said William Rudin, chief executive of Rudin Management Co. and head of one of New York’s most prominent real-estate families….

In New York City, only 8% of the employees who work in downtown office buildings managed by office colossus CBRE Group Inc. have returned from sheltering in place from the pandemic. The figure, as of last week, was based on unique card-swipes at security turnstiles. CBRE manages 20 million square feet of space in Manhattan.

The Journal wrote a bit more than a month ago about corporate reopening plans. The 8% seems on par with the tone of a report roughly a month ago. Aside from traders, no one seemed eager to return, and many employers appeared at most to be allowing, rather than requiring, employees to turn up at the office.

The number of former commuters and the resulting dependence on public transportation is a major impediment for Manhattan. Most people I’ve spoken to are reluctant to take the Metro North or the Path, yet Manhattan doesn’t begin to have enough road or parking capacity to allow former train riders to drive in. Any city with a dense central business district is likely to have a less-acute version of this problem.

Needless to say, office blocks turned ghost towns are bad for commuter-business survival and very bad for tax revenues: sales taxes, income taxes, and yes, real estate taxes, since those big corporate tenants are withholding rental payments to force renegotiation of leases, and big commercial landlords in turn are quick to press for lower appraised values when their rent rolls take a hit. So if you think a municipal revenue crisis is underway, you ain’t seen ‘nuthin yet.

Another slow moving train wreck is residential rent delinquencies:

Mind you, this is the sorry state of affairs with the PPP to keep small businesses from collapsing, and with the $600 a week unemployment supplement and the $1200 per adult payment to prop up incomes and spending. The second supplement package is still in play, but it is certain to be less generous to households, which means the rental delinquency picture will only get worse.

Some landlords will presumably accept lower rents, likely first on an interim basis (they will be anchored on their historical rent levels and in denial that the Covid-depressed market will persist for quite a while). But some are either out of money or will be in the next few months. What happens when we have a big uptick in homelessness? Even if eviction moratoriums are extended, expect them to be challenged, both formally, as an illegal “taking” and informally, by some landlords harassing tenants.

Nevertheless, this result does seem to show that political pressures are producing an outcome not inconsistent with the one Richard Murphy recommended: of having property owners take losses in order to preserve businesses and residents. Or to put it more simply, if rents can’t be paid, they won’t be paid.

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