One of America’s top banks has shed nearly 40 million square feet of office space over 15 years. BofA CEO unpacks commercial real estate’s ‘slow burn of change’

It’s no secret that the pandemic instigated much of the great downsizing of commercial real estate, but one financial services giant has been offloading leases for years before COVID-19 was even on our radar.

Bank of America was one of the first major corporations to start majorly shedding its office space even before the frenzy of remote and hybrid work. It has let go of nearly 40 million square feet in the past 15 years, CEO Brian Moynihan said in a CNBC interview on Tuesday. Today, the bank still holds about 60 million square feet of commercial space, he said, which works for its hybrid work structure.

If employees come into the office just three or four days per week instead of the traditional five, that’s either 20% or 25% savings in real-estate costs, he argues, in light of an office management method called “hotelling” in which workers schedule to use their work spaces like desks, cubicles, or offices. It’s unclear if Moynihan’s move to start shedding office space was related to a hybrid work structure, years before the pandemic ushered it in, but the vast majority of major banks had five days in-office at that point.

The reason probably lies with another major event that occurred 15 years ago: the collapse of legendary investment bank Merrill Lynch amid the crash that followed the implosion of Lehman Brothers, when the banking industry was dramatically reshaped. Bank of America acquired Merrill Lynch and set about integrating the two very different banks’ footprints. Meanwhile, in a similar deal, JPMorgan acquired Bear Stearns, a painful integration that CEO Jamie Dimon later said he regretted.

Moynihan’s recent comments come amid a flurry of moves out of commercial real estate in the financial services sector. Just this month, other major organizations including Fannie Mae and Wells Fargo announced major downsizing to their corporate spaces, and it’s expected that many more will follow suit. But this massive shedding of commercial space won’t happen overnight, Moynihan said.

“The revaluation is going through as we speak. You're seeing that come through provisioning and reserves and charge-offs, but it's relatively modest,” he said. “It takes a long time because this is a slow burn of change.” That’s because commercial leases typically last for much longer than residential leases. On average, they last three to five years, but some can last 10-plus.

Other companies letting go of commercial space

The commercial real estate industry is so dire that even Fannie Mae, the national mortgage giant, has put its 713,500-square-foot space in Washington, D.C. on the market more than a decade before its lease was set to expire in June 2029, according to CoStar data.

The $770 million agreement was signed in 2015. Fannie Mae is the largest publicly traded company in the nation’s capital—and the breaking of the lease is just the latest in a string of organizations downsizing due to hybrid and remote work culture.

“Like many other companies, we are continuing to embrace our flexible work environment by exploring office space options that support our workforce while being fiscally responsible," a Fannie Mae spokesperson said in a statement to Washington Business Journal.

Wells Fargo announced late last week that it would vacate its 29-story, 550,538-square-foot namesake tower in Raleigh, North Carolina. Employees who work there will be moved to other locations without losing their jobs.

“As part of our multiyear effort to build a stronger, more efficient Wells Fargo, we continually assess our real estate portfolio to ensure we are best meeting the needs of employees and customers, responding to consumer and economic trends, and managing our costs responsibly,” a Wells Fargo spokesperson told Fortune in a statement. “We are committed to our Raleigh-based employees and will continue to have a major presence here, but we have more real estate than we need to support these employees.”

This move isn’t surprising “because we’re seeing a lot of consolidation in commercial real estate in general,” Duke University economics professor Connel Fullenkamp told Raleigh news station WRAL. He said companies like Wells Fargo are reevaluating their use of real estate, with cost-cutting as a top factor.

“I think we’re going to see moves like that out of companies, frankly, because they’re just finding themselves with too much space because of the overbuilding that’s been taking place, plus remote work,” Fullenkamp said.

Indeed, there may be as much as 1 billion square feet of unused U.S. office space by the end of the decade, according to a report by real estate firm Cushman & Wakefield. Moody’s Analytics has also called the office vacancy rate of 19.2% in 2023 “perilously close” to the 19.3% record-high vacancy rate in 1986 and 1991.

“The overall outlook for commercial real estate in 2024 is muted,” Ermengarde Jabir, senior economist with Moody’s Analytics, previously told Fortune. “Office will continue to face the most strain in 2024.”

This story was originally featured on Fortune.com