this post was submitted on 29 Jan 2024
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Google’s costs go down if they own the building but don’t have to pay for cleaning, lights, toilet paper, paper cups, heating and AC to human comfort, etc. An empty building costs less than a building with people.
Yes, but the costs of those things are mostly fixed. If, say, 20% of the workforce goes into the office because they enjoy working there, then you pay the full cost of cleaning, lights, toilet paper, paper cups, and heating and AC for the entire building, even though it's not at capacity.
Source: My company is hybrid, but a handful of people decide to go in every day, including three people from my team.
Even if you are correct, then at best, this bullshit “real estate” angle is cost neutral. If it’s cost neutral, how is it a factor in valuation?
It's "cost neutral" in the sense that the company still pays the same $X to run the office regardless of how many people are in the office. But if it costs $1000/day to heat your office in the winter and only 50% of your employees are working in the office any given day, you're wasting $500 worth of heating that day.
Looking at it from an overhead perspective, let's say I have 1000 employees and my heat costs $1000/day. When all my employees are in, it costs $1/employee/day to heat my office. If only half my employees are in, it costs me $2/employee/day. My overhead per employee just doubled.
That's the unintuitive part. An empty building still needs some basic maintenance, and the financial difference is almost immaterial. Else the building just falls into disrepair and crumbles. The cost of conditioning a building for human use after dereliction is way larger than the cost of keeping it maintained, but the cost of maintenance between empty and full is almost the same. You can keep the AC off, you're saving that electricity, but you still have to pay for the technician to go there and make sure it is still working, same with elevators, water lines and electric networks. Those things still deteriorate even if not being used. Some things can be mothballed, some can't.
If some things can be mothballed, then costs go down. Right? Not to even consider the waste of capital that is commuting.
Yes, but not as much as one would think.