The Challenges Facing The Office Sector

As the U.S. slowly begins to reopen, companies are navigating the best way to bring employees back into the office. However, leaders will need to recognize that the world’s largest remote working experiment has left many employees desiring this arrangement in the long-term.

At the same time, the office sector is facing its own issues with low occupancy and increased sublease space. So how do businesses satisfy the needs of workers?

The misconception that remote working leads to lower productivity was diminished over the past year, and employers are expected to pivot away from collaborative, open plans in favor of design that abides by health and safety protocols.

Still, according to Catherine Liu, an associate manager at research firm Trepp, “the long-term nature of office leases allowed borrowers to maintain debt service obligations even though physical occupancy dropped off significantly during the height of the pandemic.”

Liu added that the occupancy rates between March 2020 and April 2021 had been declining across the top 25 metropolitan markets with the largest commercial mortgage-backed securities (CMBS) exposure.

“While the larger space inventory and the potential for lower demand due to hybrid work models will suppress re-absorption and keep a lid on asset values in the near term, concerns about the ‘death of the office’ or ‘death of gateway cities’ have largely been overblown,” said Liu.