The latest U.S. office market report from Commercial Edge: Whether the return-to-office mandates of large corporations will bring about the expected rebound in office utilization remains to be seen. Meanwhile, the remote and hybrid work models continue their dominance, compelling numerous businesses to shrink their footprints in the office.
However, in light of the fact that some companies have already tried to encourage return of the employees to the very workrooms with different benefits and bonuses, these attempts did not have a strong outcome. Several companies issue much more stringent policies. For instance, recently, the requirement of Amazon was announced by the latter’s CEO, Andy Jassy, from which employees must comply when returning to work five days a week starting from January. Dell has said its remote workers will no longer be eligible for promotions, and Meta has threatened to fire employees who do not appear in the office at least three days a week.
Despite all of these widely reported stressors, commercial vacancy rates and occupancy itself haven’t on their own grown much. Says Kisi Access Control, national office occupancy averages stand at 50.2% for the week ending September 30, though Illinois (56.1%), Texas (54.7%), and Florida (53.2%) are all above the national average. Smaller percentages were recorded in California (49.2%), Pennsylvania (47.8%), New York (47.2%), and Washington, D.C. (36.6%). Office usage similarly grew to 51.4 percent according to Kastle’s Back to Work Barometer, similar to the data gathered from the previous time this year.
While many companies still lament the return to the office, distributed and hybrid work clearly remain the future of work. Indeed, reported KPMG, 83 percent of 1,300 CEOs said the organization will be in the office full-time, five days a week, three years from now-up from 64 percent last year. But leasing data and badge swipe statistics tell a different story. Although CBRE reports that the number of leases signed in early 2024 is close to pre-pandemic levels, the average size for each lease was reduced by more than 25%. Office-using sector jobs are still weak, the Bureau of Labor Statistics reports, at just 0.4% annually.
According to CommercialEdge Director Peter Kolaczynski, “With office occupancy still stubbornly low, it really shines a light on the problem of too much office space. About 20% of the 7 billion square feet of office space sits empty.”
The distress is also another trend reflected in the report within the office market. Full-service equivalent listing rate rose to $32.89 per square foot as of September and recorded a national vacancy rate of 19.5% that showed a 170-basis point increase year-over-year. As many companies downsize when pre-pandemic leases expire, vacancy rates will rise-especially in Austin, Boston, the Bay Area, and Denver, all of which saw some of the most significant growth.
Construction of new office spaces in tech markets, including Austin and Seattle, has slowed way down this year in reaction to layoffs, increased capital costs, and an enduring work-from-home preference.
