Dr. Gleb Tsipursky – The Office Whisperer
Nirit Cohen – WorkFutures
Angela Howard – Culture Expert
Drew Jones – Design & Innovation
Jonathan Price – CRE & Flex Expert
The decline in office occupancy in the U.S. appears to be reversing, with businesses now embracing a return to in-person work culture.
Major firms like Amazon and Dell Technologies are leading the charge. Amazon recently mandated that corporate staff return to the office five days a week and is seeking substantial new office space in Manhattan. Meanwhile, Dell requires its global sales team to work full-time from company offices, and 3M’s CEO has signaled an expectation for increased attendance at headquarters.
According to the Flex Index, one-third of companies required employees to be in the office five days a week in Q3, up from 31% in Q2. This marks the first increase after five consecutive quarters of decline, largely driven by low unemployment that gave workers leverage for remote work.Â
As the job market cools, control is shifting back to managers, according to the Wall Street Journal.Â
While signs of stabilization are emerging, challenges persist. The vacancy rate for office spaces hovers near a record 13.8%, a significant increase from 9.4% in late 2019.Â
Since mid-2020, approximately 209 million square feet of office space has been vacated, the highest level in recent history. Many of these spaces are now considered obsolete and unlikely to be filled again.
Defaults on office loans are on the rise, with the delinquency rate reaching 8.36% in September, the highest since 2013.Â
KeyCorp’s CEO highlighted that issues with distressed office loans are far greater than problems in other commercial property sectors, which are mainly struggling due to high interest rates.
Despite these ongoing challenges, the amount of occupied office space has remained stable during Q2 and Q3, signaling a possible turning point.Â
In New York, vacancy rates are declining, aided by growth in financial services firms like Citadel and Ares Management, while artificial intelligence companies are expanding into markets such as Denver and Seattle.
Companies are also adapting to attract workers back, emphasizing amenities like gyms and outdoor spaces. HSBC Bank recently expanded its U.S. headquarters in Manhattan, citing a surge in employee attendance.
Investor interest is shifting as well, with a notable $3.5 billion refinancing of Rockefeller Center signaling confidence in well-leased properties. Although overall sales of office buildings remain sluggish, the appetite for distressed assets is increasing as valuations stabilize.
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Experts believe the outlook for the office market is improving, with many seeing a brighter future for office space than in recent years.
