Our Take Aways from The Counselors of Real Estate Webinar on: Abandoned Office Space – Dealing with What’s Left Behind

This past September 27th, the Counselors of Real Estate (CRE™) hosted a webinar moderated by Jonathan Schein, CEO and executive director of Real Estate Limited Partner Institute, better known as RELPI which featured two expert panelists:

• Ruth Colp-Haber from Wharton Property Advisors, a New York City based commercial brokerage firm and advisory service, and

• Our own Brian Silverberg, CEO and Co-Founder of The Furniture X-Change, which we proudly can claim as the largest office furniture liquidation company in the country.

Ruth set the table for what might have been considered a New York centric conversation but addresses a situation being replicated across the US and internationally…that of office space being vacated in the wake of the pandemic and changing approaches to workplace norms.

While there is much discussion about the conversion of office space to other uses, even before we debate the implications and obstacles for conversion from commercial to residential, there is a more pressing matter facing tenants and landlords: how to manage the furniture left behind when commercial tenants vacate leased spaces.

To put the situation in context Ruth shared the statistics that New York City (which is the biggest office market in the world) is currently experiencing about 100 million empty square feet of office space. While this is affecting all commercial classes, a real problem situation emerges with the B and the C buildings representing about 4,000 and totaling roughly 261 million square feet.

With mortgages coming due, landlords are facing extraordinary pressure and have had to resort to creative incentives to entice tenants to occupy new spaces, with greater difficulty in those B and C class buildings. Even worse, which anecdotally Brian shared, and Ruth concurred, new leases are tending to be smaller than the leased spaces tenants are leaving. 

While this session acknowledged the financial challenges facing both landlords and tenants, for the purposes of this post we will focus on the take-aways from the webinar most relevant to our business.   Namely, we’ll look at the challenges of the decommissioning of office space and the liquidation of furniture assets no longer needed or useful for the tenant who is moving. 

The speakers acknowledged that the way people work has radically changed with many workers continuing to work from home as they did during the height of the COVID pandemic, and only now and somewhat reluctantly returning to a hybrid or partially remote work life. The real dilemma for a lot of companies is that they might have once needed 20,000 sq ft of office space in a central business district because their workers were coming in 5 days a week. But now, they need less space and often radically different workplace configurations. As their leases are coming due, they're looking at their floor plans, and opting for leases that accommodate some fraction of their staff, rotating in as management dictates or workplace policies allow. 

The net-net of the circumstances provided a scenario for discussing the realities of decommissioning and liquidation in this post-COVID environment.

The speakers addressed a number of circumstances: 

What hasn’t changed in this environment is the reality that landlords’ terms and conditions are still strict about when and how a tenant must vacate leased space. Miss a deadline or the full implications of furniture removal and penalties mount quickly and steeply.  All furniture assets must be decommissioned and removed, leaving broom swept space.  So, as it has always been, tenants need a reliable partner who is experienced and well equipped to manage the process of decommissioning from end-to-end, cost effectively and on time.

The new wrinkle comes with the disposition of the furniture, what we typically refer to as liquidation, and it comes with several implications. Can the tenant make use of their furniture inventory in their new spaces, which we think of as reallocation? Or will the new office configuration require remanufactured furniture to accommodate new workplace scenarios (and even to restore life to furniture that may have become worn and tired). The ideal partner will be there as you vacate, but also remanufacture to extend the useful life of furniture inventory you keep, transport it and re-install it in your new space reflecting new workplace realities.

Then there is the situation where a tenant literally has no use for the furniture left behind. Brian shared a favorite truism of his, that the other speakers affirmed, that “An asset is an asset until it becomes a liability.”

In the current environment where there is newly focused commitment to sustainability, especially for large corporate tenants, this concept of “liability” is manifested in the ultimate disposition of furniture that will not be restored and reallocated in new space.  No corporate tenant wants to be seen as adding to landfill as they vacate office leases.  This emphasis on sustainability has led to the emergence of partners like TFX who can supervise and certify end-to-end that furniture being liquidated is either reallocated, donated, remanufactured for resale, or recycled under the most stringent standards for clean-burn and landfill diversion.

And inevitably tenants relocating to new spaces will often require new or different furniture. In these cases, the capabilities of a partner like TFX become that much more indispensable as a reseller of sustainably remanufactured furniture, restored as new, fully warrantied, and available far faster than original manufacturers’ lead times. 

In the free form discussion between the panelists, a few fun facts emerged:

In this evolving workplace paradigm, do tenants want different types of furniture than what is typically decommissioned from vacated office spaces?  Actually, not is seems. Despite the hype about open plans and workstations with no barriers, the idea of “hoteling” in  spaces not designated for one specific employee working a hybrid at home/in office schedule, complete open plan is not universally adopted. Brian related that counter intuitively, the demand experienced by TFX for remanufactured cubicles has never been greater than in the last three years.  In the newly imagined hybrid work environment, there still seems to be a desire for the amenities that cubicles provide.

Ruth reminded us that in a tight market for landlords the hardest space to lease is open and raw. Tenants often find it hard to envision how their new offices will look and function. Brian confirmed that in buildings where multiple floors may be available, landlords are coming to TFX for staged build outs of one floor. Landlords are finding this way can more easily move perspective tenants down the decision track faster, even offering the installed furniture as part of the deal.  With extensive inventory on hand to populate these staged build outs, TFX again proves the perfect partner of both tenants, and landlords in these circumstances.

While both panelists talked about specific client types who have been served by TFX (Fortune 100 players, large consultancies, big multinational banks, etc.), Ruth spoke of her personal experience with smaller clients being quite happy with the service, availability, and quality of the remanufactured furniture TFX has on inventory for resale.  The circular economy has been embraced by all sizes of tenants on the move who value quality and a sustainable office furniture solution, and there is a TFX solution to serve all of them.

If you wish to watch the full video of the webinar session, you can access it at The CRE YouTube Channel https://www.youtube.com/watch?v=wi5Q7AGpISU

And if you have a project to discuss, please reach out to us at  inquiry@tfxfurniture.com .