The fate of office real estate in the WFH era

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The Weekend Pitch

January 23, 2022

Presented by Plante Moran

(Aleutie/Getty Images)

Chances are good that you work on a team whose offices have been pretty quiet or even empty for most of the past couple years.

And, thanks to the one-two punch of the delta and omicron variants, a new recognition has emerged: Many, if not most of us, plan to use offices very differently, if at all, over the months and even years to come. It's a scary thought for office-building owners who worry how they'll survive in a world where tenants are shifting to remote or hybrid work in ever greater numbers. No need to schlep to the office when you have Zoom, Slack and other work-metaverse tools, right? Maybe so, but owners of big downtown offices aren't ready to surrender just yet.

So what to do with all that pricy real estate? For many landlords, the answer is to reimagine how buildings will be used in the future, and to find innovative (read digital) ways to make spaces as valuable as possible to office tenants whose employees have never been more untethered from the traditional workplace. Like many old-line industries—except perhaps with greater urgency—the real estate sector is plunging into tech for help adapting to the new normal. Indeed, landlords are earmarking billions of dollars to place bets on flexible workspaces, desk reservation apps, co-working and other potential hallmarks of the new workplace.

I'm Alexander Davis, and in this edition of The Weekend Pitch we'll explain what's at stake for the industry and why many of the world's premier office landlords are becoming not just financiers, but also evangelists, for software and other tech they hope will enable their industry to ride out the uncertainty of the remote-work revolution.

Countless companies' return-to-office timetables have been upended. A growing number of building landlords are hunkering down for the long haul, expecting offices won't fill back up for the foreseeable future. In their view, a giant swath of a formerly high-occupancy office market will consist of businesses running hybrid or mostly remote workforces for years to come.

"This is the most seismic change in working since the industrial revolution," said Roelof Opperman, whose venture firm Fifth Wall is backed by real estate powerhouses including CBRE, Hines and Cushman & Wakefield.

Quote/Unquote

Phil Spencer speaks during the Xbox E3 2019 Briefing at The Microsoft Theater in Los Angeles. (Christian Petersen/Getty Images)

"Had good calls this week with leaders at Sony. I confirmed our intent to honor all existing agreements upon acquisition of Activision Blizzard and our desire to keep Call of Duty on PlayStation. Sony is an important part of our industry, and we value our relationship."

— Xbox CEO Phil Spencer via Twitter

Earlier this week, Microsoft announced plans to buy video game publisher Activision Blizzard for $68.7 billion in cash. "Call of Duty," "World of Warcraft" and "Candy Crush" are a few of the many video game franchises owned by the company.

Deal Flow

The UK & Ireland dominated the European PE landscape in 2021, despite the impact of Brexit. The region has doubled its pre-global financial crisis peaks and quadrupled its deal value from 10 years ago.

Our 2021 Annual European PE Breakdown takes a comprehensive look at the main drivers of what was a record year for European private equity in terms of deal count, deal value, exits and more.

Did you know ...

(Peter Dazeley/Getty Images)

… That Permira's debt investment arm has raised about €2 billion (around $2.28 billion) for its fifth direct-lending fund, putting the London-based PE firm roughly halfway to its €4 billion target? The vehicle will focus primarily on midsized, sponsor-backed businesses in the UK and throughout Western Europe.

Check out our exclusive look at Permira's new vehicle and why the private credit market is booming.

Datapoints

VC deal value for early-stage startups in the US eclipsed the $80 billion mark in 2021 for the first time ever, according to the PitchBook-NVCA Q4 2021 Venture Monitor.

Many of the robust numbers can be attributed to a rise in nontraditional investor participation and record levels of dry powder.

Recommended reads

As demographics and tastes shift, restaurants are increasingly heading to the suburbs. Will they thrive there? [The New York Times]

Why investors see both promise and risk in continuation funds. [The Wall Street Journal]

Hong Kong used to be a rare bridge between China and the rest of the world. Now the city's status as a magnet for international financiers is cratering. [Bloomberg]

Game and tech industry executives weigh in on the key takeaways from the Microsoft-Activision deal. [The Information]

Meet Sam Zeloof, the 22-year-old using salvaged and homemade equipment to build computer chips in his parents' New Jersey garage. [Wired]

The SEC claims there's absolutely no visibility for investors when it comes to unicorns, but a growing market for data and information suggests otherwise. [Institutional Investor]

This edition of The Weekend Pitch was written by Alexander Davis and Priyamvada Mathur. It was edited by Chris Noble, Angela Sams and Sam Steele.

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