Office occupancy continues to lag five years after the pandemic, as attitudes about remote work have become entrenched in company culture. With many properties occupied far below capacity, owners are facing a difficult situation, according to Yardi Matrix’s September national office report.
About two-thirds of U.S. companies offer flexibility to their employees, primarily through a structured hybrid format that requires a minimum amount of office attendance each week, while allowing employees to make choices within that framework. A Kisi study found that Tuesday is the peak day of occupancy, at 55% and Friday is the lowest, at around 44%. With about half of employees surveyed by Pew Research Center saying they would consider leaving their job if their employer discontinued its work-from-home policy, firms will likely maintain some version of hybrid work to retain talent.
The structured hybrid model does not bode well for the future of the office market because companies will look to limit office space to save on costs, according to the report.
“We expect the hybrid work model will continue and office utilization will not return to pre-pandemic levels,” said Yardi Matrix.
“The pain from this new reality will not be felt equally across markets, as New York City is experiencing more leasing activity and higher demand than at any point over the last five years. Elsewhere, vacancy rates remain near record highs.”
The national vacancy rate in August was 18.7%, down 80 basis points over the past year. Some markets are seeing vacancy rise, including Seattle, where vacancy climbed 230 bps to 27.2% over the past year. The report attributed this trend to both remote work, oversupply and the impact of AI on the market’s tech sector. Employment in Seattle’s information sector has fallen by 10% since June 2022.
Across the country, office development is waning, with only 40.2 million square feet currently under construction, representing 0.6% of stock. New office supply levels are similar to those during the Great Financial Crisis, with only 10.7 million square feet starts so far this year. Manhattan has had the most, with 2 million square feet breaking ground over the summer. West Palm Beach is also strong with 1.4 million square feet, largely due to two downtown towers underway. Dallas is the third-most-active market for starts, with nearly 1 million square feet breaking ground. No other market has even exceeded 500,000 square feet this year.
The office-using sector lost 25,000 jobs in August, led by professional and business services. San Diego and the Bay Area lost the most, dropping 2.5% and 2.2%, respectively. The region has experienced a decline in tech hiring as the pandemic hiring boom has diminished.
Yardi Matrix tracked $33 billion in office sales through August, with properties trading for an average of $190 per square foot. This is a slight increase from 2024 but is significantly below pre-COVID prices of $277 per square foot in 2019.
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