Yahoo and Office Demand
Office building owners, struggling with relatively anemic demand, may find some measure of comfort in Yahoo’s decision to rein in its work-from-home employees and mandate their return to the cube-world. Is this the start of a trend reversal that could increase occupancies and buoy rents among office tenants? Probably not, although the Yahoo move may give some CEOs in other companies pause about letting home-officing get out of hand. Certainly for creativity and strategy-related jobs the benefits of having teams inter-mix and bounce ideas off each other will be realized better in face-to- face environments. And it goes without saying that most successful senior management teams work in proximity—like down the corridor or somewhere within the still very necessary company headquarters—to foster esprit de corps and make sure everyone is operating in concert.
But allowing workforce flexibility can build morale and many numbers crunching and sales jobs can be done productively and effectively from anywhere with managers able to keep track of work flow thanks to various technologies. There’s no reason to pay up for leasing more space and force people into unnecessarily time consuming and expensive commuting when you don’t need to. Meanwhile mobile phoning and information transmission steadily improve to keep separated employees more closely linked and in synch with the company culture.
For many years now, I’ve said the office has become less important and necessary, but it isn’t going away. The Yahoo move stands testament to the limits of virtual-ness. Nevertheless I’d expect to see more people working outside of traditional offices, more jobs outsourced to people working away from company bastions, and less space provided per capita for people who do work in offices. In the meantime, wireless technologies and clouds eliminate requirements or substantially reduce the need for computer rooms, filing cabinets and other storage space. That need is not coming back and neither are large corner offices.
Of course, the home office trend helped generate strong sales for the likes of Staples, Office Depot and Office Max. But the big box world has always had trouble sustaining more than two major brands in any single category, and now Depot and Max are slated to merge. The combination will lead to hundreds of store closings, impacting strips and power centers nationwide at a time when retailers have been concentrating operations in stronger locations, and some big box retailers look to secure sites within the top regional malls. In short, consolidation continues and weaker centers will be in the crosshairs—they will have a difficult time replacing these stores.
Are we feeling the late winter chill yet over sequestration? The deficit hawks do not seem too worried about how government cuts will boost unemployment and could short circuit the tepid U.S. recovery. But more people are waking up to the reality that decreased government outlays directly impact private sector jobs across a swath of private industries, including defense and infrastructure contracting. To see how austerity works, just take a look over at Europe where unemployment averages over 12%, and the Italians have just booted out their budget cutting government in disgust. And don’t forget how bad things would be if interest rates were anywhere near their normal range.
So Yahoo won’t have much impact in influencing the office markets especially under the less than upbeat circumstances. And like the office supply category killers, you have to wonder how many search engines we really need. The Yahoo move is really about whether the company can develop better products and services to stay in the game, and for any landlords leasing space to Yahoo that really bears watching.