Bosses encourage workers to return to their jobs, stabilizing the US office market

American workers are returning to the office.

More companies have committed to returning to an office culture, abandoning the remote work policies they adopted during the pandemic. Wall Street Journal reported.

A third of all companies mandated a return to the office five days a week in the third quarter, up from 31 percent in the second quarter, according to the Flex Index, which studies workplace strategies.

This ended a streak of the previous five quarters in which office work levels fell significantly as low unemployment gave employees a head start in their desire to work more remotely.

Now, white-collar workforce growth has slowed, shifting the balance of power back to management.

Amazon called its corporate employees back to the office five days a week. The e-commerce giant is now in talks to lease additional office space next to its company headquarters in the former Lord & Taylor building at 424-434 Fifth Avenue, which houses 2,000 employees.

Dell Technologies is also now requiring its global sales team to work in the office full time, while 3M has told senior employees to increase their time at the company’s headquarters and other sites.

No one expects workplaces to fully return to pre-pandemic occupancy requirements, and the rise in the office workforce does not mean an end to the office market’s challenges. The vacancy rate stabilized at a near-record 13.8 percent, down from 9.4 percent in the fourth quarter of 2019.

Since the second quarter of 2020, U.S. companies have vacated nearly 209 million square feet of office space, the highest amount ever recorded over a four-and-a-half-year period, according to CoStar. Much of this vacated space is considered obsolete and may never be occupied by corporations again.

After eight consecutive quarters of corporate space declines, office occupancy remained virtually unchanged during the second and third quarters of 2024.

New York has seen a steady decline in vacancy rates as financial firms such as Citadel, Ares Management and Blue Owl Capital look to expand. Artificial intelligence firms in San Francisco have begun moving to other markets such as Denver, Seattle and Atlanta.

Companies are using office perks like luxury gyms and fine dining to make it easier for workers to return to their jobs.

HSBC, which in 2022 leased about 200,000 square feet for its U.S. headquarters at Tishman Speyer’s new The Spiral complex in Manhattan, acquired another 35,000 square feet this year after office traffic rose to 80 percent. compared to 40 percent at the bank’s previous office.

Developers note a change in sentiment.

Earlier this month, Tishman Speyer completed a $3.5 billion refinancing of the renovated Rockefeller Center, the largest issuance ever recorded for a single office asset. The move has set an example for owners of other well-leased office space.

Investor interest in distressed properties increases as prices fall; Real estate firm Eastdil Secured has completed 18 office sales valued at $2.6 billion, led by creditors offloading assets.

But defaults and other missed payments continue to plague the market. The delinquency rate for office loans converted into securities increased to 8.36 percent in September, the highest since November 2013, according to Trepp.

Banks reporting third-quarter earnings said problems with office loans dwarfed other types of commercial real estate that have been plagued by high interest rates late in the pandemic era.

Roughly 40 percent of office leases signed at the start of the pandemic are yet to mature, according to CoStar. Once this happens, many expect office tenants to unload space.

“The winding down is not over yet,” Phil Mobley, national director of office analytics for CoStar, told the publication.

— Caroline Handel

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