Experts say Twitter’s decision to allow its employees to continue working from home if they choose will likely catch on throughout the tech industry.
When Silicon Valley search engine Pinterest opted to pay nearly $90 million to get out of its lease on 490,000 square feet of unbuilt office space in San Francisco in August, it sent shock waves through commercial real estate markets.
The message was that tech companies, which formerly thrived on productivity and creativity born around a water cooler culture, could do just as well when most employees worked from home and got together to hash out ideas over Zoom.
Suddenly, there would be no need for companies to lease as much space in expensive first-tier cities like San Francisco, New York and Chicago, or even in less expensive second- and third-tier cities. Workers could avoid long, frustrating commutes in bumper-to-bumper traffic and could protect themselves from exposure to COVID-19.
But what would happen to owners of all that office space and to the lenders who provided them with the capital to build and buy it?
Pinterest market researcher Paul Pattishall works at his desk at the office in San Francisco. (Photo: Jeff Chiu, Associated Press)
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Ever since the pandemic took hold, corporate executives have been pondering what to do about their office leases, how much space they would need going forward and whether their staffs can be productive working from home long term.
Because most have signed long-term leases and the questions they’re asking are difficult to answer, the impact on owners and lenders has not been as severe as on the hotel or retail sectors, whose loan delinquencies are at record highs.
Whereas 24% of all hotel loans and 18% of all retail loans sold in the commercial mortgage-based securities market fell into delinquency in June, only 2.7% of office building loans suffered the same fate, according to Cushman & Wakefield, the commercial real estate services firm.
“The office market, it’s like a slow motion car wreck,” said Christopher Marinac, director of research with Janney Montgomery Scott, a financial advisory firm based in Atlanta. “I see heavy uncertainty on the future demand for office space.”
It takes a lot longer for an office building owner to default on a loan, explained Jason Vanslette, a mortgage foreclosure litigation specialist with the Kelley Kronenberg law firm in Fort Lauderdale, Florida. Owners sign leases with multiple tenants and “a good amount” would have to stop paying rent at the same time for owners to get in trouble with lenders.
“Still, the slowing economy from COVID and the existential question of whether employees can continue working from home over the long term means the