TRG | The Bottom Line – 9/20

TRG this past week moved into our newly renovated office space, and against that backdrop, two recent data points point very favorably to office furnishing companies Steelcase (SCS) and HNI (HNI).  Amazon CEO Andy Jassy recently released a memo to employees that contained the following statement, “We’ve decided that we’re going to return to being in the office the way we were before the onset of COVID. When we look back over the last five years, we continue to believe that the advantages of being together in the office are significant… If anything, the last 15 months we’ve been back in the office at least three days a week has strengthened our conviction about the benefits.” This is expected to take effect early in the first days of 2025. PNC’s recent CFO survey showed 65% expect to “increase” company’s office square footage, 33% expect no change (i.e., no reduction of office space, which is encouraging in and of itself). We are cautious of the “this is it!” headlines on anything, particularly those about a rapid turnaround of corporate offices. This is definitely not the first time in the past few years that a noteworthy corporate leader has made a major declaration on the office. But it is quite positive in our view: As we have observed from office furniture providers, there is a gradual upward grind to office utilization and that is requiring upgraded furnishings. Public companies’ results generally are following this trend. The announcement and survey above are qualitative evidence that this upward grind has the potential to continue. We believe all of this is a benefit to office-exposed companies, particularly office furniture companies. Again, this is not a sea-change moment, as much as an incremental declaration (from a large influential company CEO and multiple CFOs) that the office is not only here to stay (stabilized) but also is positioned to show modest growth in the coming years. As companies (like TRG) expand/improve office spaces, additional building product beneficiaries include Armstrong World (AWI), Interface (TILE), and Worthington Enterprises (WOR) to name a few.