Why telecommuting is a big problem for corporate landlords

21Sep09

Whether it’s the weak economy or a more fundamental change in the way people do business, it seems like more and more companies are embracing telecommuting. In the process, these firms end up reducing the amount of office space they lease, since fewer employees are parked at a desk in some office building. Of course, this is a bad thing for the real estate companies that own office space and make money by leasing it out. So why aren’t these landlords taking steps to hedge their bets in the office market?

With a little bit of creative thinking, corporate landlords could certainly position themselves to benefit from the telecommuting trend. They could seek out tenants like Regus, which provides on-demand office suites and meeting rooms that decentralized firms and their workers can rent by the month, day, or even hour. They could allocate a certain amount of space in their buildings towards smaller, turnkey offices that appeal to companies who don’t need lots of real estate — and don’t want to be bothered with costly buildout and complicated leases. Or they could make an effort to attract tenants whose core business involves helping other firms telecommute more effectively, like software-as-a-service companies.

On a conceptual level, it’s easy to see how corporate real estate owners can hedge against a long-term decline in the demand for office space. But it’s much harder to convince them to take action. In my experience, corporate landlords are stubborn and inflexible, and couldn’t care less about what their current or prospective tenants want. Thus, I suspect the majority of landlords won’t take the telecommuting threat seriously for a long time. And by then, things will have changed so much that adapting to the new rules of the market will be a costly and painful process.



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