Office Vacancy Rates Stabilize as Employers Call Workers Back to Desks

New York, NY, October 29, 2024-"America’s historic retreat from the office building may finally be winding down,” reports the Wall Street Journal. 

“More companies are backing away from the looser workplace policies they adopted during the early years of the pandemic as executives increasingly recommit to promoting an office culture. 

Amazon called corporate staffers back to the office five days a week last month. The company is now looking for a big block of expansion space in Manhattan, according to brokers.

“Dell Technologies said it is requiring its global sales team to work from company offices full time. 3M’s new chief executive last week said the company expected higher attendance from senior employees at the company’s headquarters and other large sites.

“One-third of all companies required workers to be in the office five days a week in the third quarter, up from 31% in the second quarter, according to Flex Index, which tracks workplace strategies. 

“That terminated a streak over the previous five quarters when that rate had steadily fallen. One reason for that decline was because low unemployment gave employees leverage when pressing for more remote work. Now, the white-collar workforce isn’t growing as much, shifting the balance of power back to managers. 

“No one sees workplaces returning to prepandemic patterns, but most believe the worst is likely over for the office sector.

“‘We looked like we were on a path that we were going to see a drop continue quarter after quarter,’ said Rob Sadow, chief executive of Flex Index. ‘All of a sudden in the third quarter we saw a shift in direction.’

“These signs of stabilization hardly signal an end to office-market turmoil. 

“The vacancy rate is stabilizing at a near record level of 13.8%, up from 9.4% in the fourth quarter in 2019. Since the second quarter of 2020, U.S. office tenants have vacated close to 209 million square feet of space, the highest amount ever for a four-and-half-year period, according to data firm CoStar Group. 

“A lot of the current empty office space is now considered obsolete. It may never be filled. 

Defaults and other missed payments also continue to rise. In September, the delinquency rate of office loans converted into securities increased to 8.36%, the highest rate since November 2013, according to data firm Trepp. 

“Banks, which have been reporting third-quarter earnings, say problems with distressed office loans greatly eclipse difficulties with other types of commercial property that are struggling primarily because of high interest rates. 

“‘The real issue is office,’ KeyCorp Chief Executive Chris Gorman said in an interview, referring to the commercial-property industry in general.

“What’s more, leases for about 40% of the office space tenanted at the beginning of the pandemic haven’t yet matured, according to CoStar. When they do, many of those tenants are expected to shed space.

“‘The winding down is not over,’ said Phil Mobley, CoStar’s national director of office analytics.”