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Out of the Office
American Offices Have a Vacancy Problem

Demand for office space isn’t where history tells us it should be, and it looks like new ways of working—not the strength of the economy—are to blame. The WSJ reports:

Employers have only reoccupied about 52% of the 142 million square feet that went vacant amid the economic downturn, with occupancy in the second quarter growing by 2.8 million square feet, according to numbers set for release Tuesday from real-estate-data firm Reis Inc.

It wasn’t surprising that office occupation dipped during the economic crisis; historically, the two tend to correlate. What is significant, however, is the tepid rebound:

[D]uring this economic cycle, companies have been more reluctant than usual to expand, which many in the sector believe reflects a trend by companies to pack a greater number of employees into tighter spaces. This is partly a cost-savings measure but it is also a strategy some companies are using to encourage workers to collaborate.

Expect telework to accelerate this trend even more, and the shift toward an information-based economy will further undermine the market for office spaces. Tech firms use less space per worker and need fewer workers per unit of output. As tech gets more important, America’s commercial real estate market may come to look increasingly overbuilt. The office tower, like the mall, was an icon of late 20th century life. The internet has already knocked the American mall off its pedestal; the internet is also going to take a bite out of the American office-space market.

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  • Andrew Allison

    The Feed’s obsession with telework is becoming tedious: this is a report about increased office-worker productivity and reluctance to add staff.

    • LarryD

      And why are companies reluctant to add staff? Because the “recovery” has been tepid since 2008. Because business has no idea what the “settled law” will be next week, nevermind next year. But they are confident complience costs will increase.

      • FriendlyGoat

        Actually, income taxes on companies’ earnings from the work performed in offices are too low. The higher the taxes to be paid on company earnings, the higher will be the number of employees and the wages/benefits paid—-in order to reduce the taxes.

        Yes, I know this runs counter to everything you hear, but that’s because we have all been “hearing” baloney for a long time.

        • Andrew Allison

          Where can I get some of what you’re smoking?

          • FriendlyGoat

            From Thomas Piketty.

        • MartyH

          Can you show your work? Here’s mine:

          Imagine a company that makes $100K at a 30% tax rate. The government gets $30K, and the company keeps $70K.

          Now assume that the tax rate goes up to 50%. Assuming the same $100K profit, the government gets $50K and the company keeps $50K.

          Now assume that the company hires a $20K worker to “reduce the taxes.” (The worker sweeps the floor and so does not add anything to the bottom line.) In the low tax scenario, the company makes $80K and keeps $56K, while in the high tax scenario the company makes the same $80K but nets $40K. So adding the worker costs the company money.

          Now assume that the worker is a salesman who generates a net $20K in profits. The result is the same-the company’s net earnings are higher under the low tax scenario ($84K) than the high tax scenario ($60K).

          Taxes are a cost. Raising taxes increases a company’s costs, just like raising the rent does.

          The only scenario where your logic would make sense is if the higher taxes spur a company to somehow grow to generate more revenue to compensate for the higher taxes. Rather than this occurring, my guess is that a rise in taxes would cause companies to close or shed their most marginal product lines, because they can no longer be justified at the higher tax rate.

          • FriendlyGoat

            The decision to hire the $20,000 worker costs $10,000 against the bottom line in the 50% taxation scenario. The same decision costs $14,000 against the bottom line in the 30% taxation environment.

            Likewise a decision to cut a $20,000 worker would save the company $10,000 at 50% tax and and would save the company $14,000 at 30% tax.

            I’m not arguing that you can raise taxes and leave the companies with more cash. I’m arguing that higher taxes make it easier for hiring decisions to get made AND also cause layoff decisions to be less tempting.

            We have a problem when large corporations together have a trillion or more in cash and yet are “reluctant” to hire. We’d be much better off if half or three-fourths of that trillion was in payrolls. Tax coercion is a big key to making that happen, since, as we now see, the owners and managers of corporations have never been both richer and stingier at the same time.

          • MartyH

            “The decision to hire the $20,000 worker costs $10,000 against the bottom line in the 50% taxation scenario.”

            No, it does not. Taxes are a percentage of profit.

            Profit is income minus expenses.Hiring someone is an expense and thus lowers profit (assuming that they do not generate revenue.) Hiring someone decrease the payment to the government, but also takes money out of the pocket of the business owner (which is what the business owner really cares about.)

          • FriendlyGoat

            One of your examples had a company earning $100,000 and paying $50,000 tax, leaving $50,000 in cash with the company. If they hire the $20,000 worker, and then have only $80,000 profit as a result, then pay $40,000 tax and have $40,000 left in cash, the decision reduced their cash by $10,000. They paid the worker $20,000, but they paid the government $10,000 less.

            You had a point earlier that most companies won’t hire someone to sweep a floor that doesn’t need sweeping.
            We have to assume that a new worker also contributes something to growth of the business, perhaps as a salesman as you suggested, or perhaps producing something that is sold. So the $100,000 profit probably did not just stand still, but if it did, then at 50% tax, the employer paid half and the reduced taxes paid half of the new $20,000 salary.

          • f1b0nacc1

            More to the point, Profit is by no means a sure thing, which is something that the Left likes to ignore.
            If I hire a $20k worker who MAY (say 50% probability) generate $5k in profit, I am a lot less likely to hire him if the tax rate is 50% than if it is 30%. Since I may (from year to year) make less or more than that $5k profit, but the tax will remain forever, keeping my fixed costs low (i.e. hiring fewer workers) is an entirely reasonable strategy over time.
            Add to this the regulatory burden (another effective tax), and it isn’t difficult to see why companies are reluctant to hire

  • Bruce

    The use of the phrase “economic recovery” is dubious. GDP was minus 2.9% in Q1. They make it sound like it was the only cold winter in history. In addition, the “robust” job report that showed 300,000 new jobs in June failed to mention that 800,000 part time jobs were created wile 500,000 full time jobs were lost. The smartest among us should do a bit more research before throwing around regime friendly, MSM coined platitudes.

    • Curious Mayhem

      It’s worse than that. The headline number for payrolls come from the “establishment survey” (a sample of mostly large businesses), then processed through something called the “birth-death” model, as well as seasonal adjustments. Other economic numbers do NOT agree with the inflated payroll numbers for the last six months: GDP, the “household survey,” real wages. Unemployment claims, still above 300K, are high for this late in a recovery, which typically sees these at 200-250K.*

      So, the seasonal adjustments were a major problem earlier in the recovery, but become less so with time because of the cumulative effect of the intervening five years since the big 2008-9 layoffs. They tended to inflate the winter-spring numbers, but make the summer numbers look worse, relative to current reality.

      The “birth-death” model, however, is highly problematic. It’s supposed to account for smaller businesses, but it’s sophisticated guesswork and easy to manipulate for political purposes — and the error can accumulate to 100s of thousands, or even a million, over the course of a year. The BLS does revise monthly numbers and make an annual adjustment, but these are barely reported in the benighted “news” media. BTW, during the Obama era, unlike the Bush or Clinton eras, these revisions have been downward much more than upward.

      * Another fallacy often heard is that falling claims are a sign of an improved labor market, as if these have something to do with hiring. Claims come from layoffs and firings, not hirings. The two series are independent of one another, and improvement in one does not imply necessary improvement in the other. For example, in 2009-11, the Great Recession mass layoffs had ceased, but hiring was slow.

      • Bruce has done a lot of analysis on the birth-death model. The only thing I really disagree with you on is the adjustments. I don’t think they will adjust down to the degree that they should because the BLS is co-opted politically.

        • Andrew Allison

          You’re right, of course, that data issued by “our” co-opted government agencies can no longer be trusted. But fudge as they may, the fact that this has been a, full-time equivalent, jobless recovery is going to become ever-more apparent as the victims continue to pull in their horns.

  • Jacksonian_Libertarian

    There was never any rebound, we are trapped in Great Depression 2.0 and there’s an idiot in the White House.

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