Kastle's Office Occupancy Meter Surges

Office building owners and landlords who have been hoping for a post-Labor Day surge in occupancy levels were rewarded this week with a solid bump in Kastle’s weekly back-to-work barometer, which has hovered at around 43% since the middle of March.

Kastle’s 10-city average, based on a survey of entry card swipes, jumped to 47.5% in this week’s report from last week’s level of 43.4%, with all 10 markets posting solid gains—led by an 8.7% surge in New York City, which jumped to 46.6% from last week’s level of 38% in Kastle’s report.

Three Texas cities continued to outperform other markets in the 10-city office occupancy chart: Austin tops the leaderboard at 60.5%, followed by Houston at 56.8% and Dallas at 54.9%.

Two California cities that have languished in the mid-thirties in Kastle’s survey for several weeks—San Francisco and San Jose—both posted solid gains in this week’s survey. San Jose notched a 5.5% increase, rising to 39.5%, while San Francisco’s office occupancy hit 40.7%.

Also notching significant bumps in this week’s Kastle survey were Washington DC, which posted a 4.7% increase to 44.7%, and Philadelphia, which saw a 4% jump that pushed the occupancy average in the City of Brotherly Love to 40.7%.

Office leasing activity in Manhattan nearly doubled in July, surging to 3.16M SF from June’s total of 2.2M and almost 1M SF more than the activity recorded in July 2021, according to Colliers. The overall July leasing activity in Manhattan was the strongest monthly leasing total since January 2020.

While a consensus has emerged that hybrid work patterns will continue in the emerging post-pandemic economy, the impact on overall office footprints remains uncertain.

In a webcast hosted by Marcus & Millichap CEO Hassem Nadji last week, former US Treasury Secretary Lawrence Summers said he thinks hybrid work is here to stay, he does not believe it will have as much of an impact on office footprints as some may be projecting.

“A lot of people will go substantially remote. Employers are going to get better at monitoring remote work and they’ll become a bit more accepting of work at home,” Summers said.

“But if people come to the office three days a week, the employers will want everyone to come in on the same three days, so that will have less impact on office footprints,” he said.

In a CNBC interview earlier this month, Silverstein Properties CEO Marty Burger projected that office occupancy levels will improve between now and the end of the year. “I think after Labor Day, you’re going to see an increase in people coming back to the office, and I think by the end of the year, you’ll have some new normalcy in what happens in the office market,” Burger told CNBC.

Asked to define “new normalcy,” Burger said. “I think Tuesday through Thursday, you’re going to see maybe 70-80 percent office occupancy.”

“It’s interesting, because if you ask someone if they want to work remotely, they’ll say yes. If you ask them if they want to give up their office space, they’ll say no,” he added.