It's 2023 now, and as predicted, after millions of us got remote jobs and work from home shifts over the last three years, the great Return To Office isn't much of a return.
The so-called “return to the office” has been underway for a while now, and it’s a bit of a mess. Sure, more people are going to the office more often than they were a year ago, but we’re still eons away from where we were before the pandemic. And despite the gains in office attendance, many office buildings themselves are in big trouble — some of which goes beyond remote work and started long before the pandemic.
So despite what you’re hearing from some bosses, things will likely never go back to the way they were.
First off, the push to return to the office is not that robust. For every high-profile company forcing workers to return to the office, another lets them work where they wish. Companies that have instituted return-to-office policies have backpedaled or failed to enforce them. Even New York City’s mayor, who’s been bullish on the return to the office and who mandated a five-day-a-week return-to-office policy last June, is reconsidering as the city struggles to fill empty jobs.
The pain this is causing in the commercial real estate world is already visible. As office owners struggle to lease space or fail to secure more financing, delinquency rates for office loans are at their highest rate — 2.8 percent — since the pandemic began, according to data from finance analytics firm Trepp. That’s partly due to rising interest rates and trouble at regional banks, which account for most commercial real estate lending. Some fear that the recent failures of Silicon Valley Bank, Signature Bank, and First Republic could spread to other regional banks and further hurt the office market. Converting offices to other uses is expensive, and the credit to do so is hard to come by. So as more office leases come up for renewal or more loans need refinancing, the number of delinquencies will continue to jump.
And that pain will not be isolated to office building owners. Big cities like New York are heavily reliant on property taxes, which fund a huge chunk of the city’s budget, so losses there affect everyone in the city. Then there are the many businesses and people who were reliant on daily traffic to and from offices for their own livelihoods. Some have predicted an “urban doom loop” in which fewer people and less money coming in means fewer amenities and poorer quality of life, which leads to even fewer people and less money and so on and so forth.
Some people will certainly still go into offices in the future. It just won’t be as many people or as often, which means the amount of office space needed will go down. And the office space they go to will generally need to be nicer. The continued availability of open office space as office owners struggle to rent it out makes it a tenants’ market, where companies in a “flight to quality” are able to be choosier about the offices they pick.
As of now, the data shows that a majority of workers who were able to work from home still do some (46 percent) or all (19 percent) of the time, according to the latest data from WFH Research. Before the pandemic, these numbers were in the single digits. Stanford economics professor Nick Bloom, who helps run the project, thinks the number of workers in hybrid situations might actually climb to around 60 percent, with most of the gains coming at the expense of people currently in the office full time. That outcome is already showing up in survey data, as companies who said their workers would be fully on-site last year are now switching to hybrid work.
The weak return-to-office movement means that a lot of office space is being left empty. In North America, office utilization — the number of spaces that are used as a percentage of all spaces available — is currently at about 21 percent, less than half what it was pre-pandemic, according to XY Sense, a company that uses sensors to track office occupancy. That’s consistent with data from key card swipe company Kastle, which shows US office occupancy levels to be at 50 percent of its pre-pandemic levels.
Now, that's not stopping business media from publishing scare stories about how if you don't return to the office now, you'll lose that promotion, or lose your job to AI or get fired for using at home and sure, some of that may happen, but at this point there's a permanent shift to a much larger percentage of workers working in remote work than before the pandemic.
More and more Americans want remote positions, and they are getting them.
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