This originally appeared in my July 2026 newsletter.
Hybrid work has changed the math. If finance leaders rely on traditional lease vs. buy models, their assessments could be profoundly inaccurate.
70% of Fortune 500s employ a hybrid work policy. Most of them maintain a mixed real estate portfolio of owned and leased locations.
The established lease vs. own calculation assumes a stable headcount, linear growth, and most of all, predictable office use. But the widespread adoption of hybrid work has impaired our assumptions.
The flexibility premium has grown.
Return on capital, balance sheet impact, and tax implications remain important. But the business value of an asset directly correlates with its use.
A company's most expensive space is the one it doesn't use. At some point in their career, most finance and real estate leaders have been stuck with a "white elephant" location, an asset that has no value to the business but carries substantial cost.
In those cases, the unneeded expense has overtaken the favorable metrics that the original decision was based on. In other words, the lack of flexibility has rendered their decision methodology useless.
Exit strategies must be priced in correctly.
In a pre-pandemic, non-hybrid world, utilization was more predictable. The potential need to downsize an office could be a footnote. Today, companies must contend with large fluctuations in occupancy.
The rise of AI has further complicated our ability to predict the need for offices.
A typical lease vs. own analysis leans too heavily on financial ratios and direct cost comparison, without enough consideration for risk. A new approach must give proper weight to a firm's ability to downsize or exit a space.
The updated model.
Inputs to consider for your updated model.
Explicitly priced flexibility, based on factors including:
1. Key lease terms. For example, lease length, termination rights, options to expand or downsize.
2. Market velocity. The number of leases and sales that take place during a given period. Low velocity means exits are difficult.
3. Market value of negotiated deal. Comparison of the expected lease rate or sale price to similar sites. Exits are easier when you're "under the market."
4. Asset specialization. How the design and buildout of the space compare to what is generally demanded. The more unique it is, the more difficult it will be to find a buyer or subtenant.
Corporate America is adapting to hybrid work. So must our financial models.
