Vacancy Rate in US Office Buildings Remains High

The vacancy rate of office buildings in major US cities remains at nearly 50% - unchanged from the beginning of the year.

The vacancy rate of office buildings in major US cities remains at nearly 50% - unchanged from the beginning of the year. This comes as companies no longer see the hybrid working model as a temporary trend. At the beginning of the year, office real estate owners expected the occupancy rate to increase as the "white-collar" workforce returned to previous work habits. However, most companies adopting the hybrid working model have not intended to change, leading to falling valuations of commercial real estate in many cities. This could result in further reductions in municipal property tax revenues.

The current workplace model has put bars, restaurants, and other small businesses that rely on the spending habits of office workers five days a week under great pressure. In New York, every employee who works from home instead of going to the office costs businesses in the city about $4,600 in annual revenue loss, according to WFH Research, a consulting organization that tracks working models.

Vacancy Rate in US Office Buildings Remains High

Some cities are experimenting with new policies to lure workers back to work. Last week, New York City Mayor Eric Adams announced tax incentives for office building owners if they upgrade buildings built before 2000. The New York government hopes this will help increase occupancy rates.

Office occupancy rates are still less than half their pre-pandemic levels, with employees spending an average of just 2.5 working days per week in the office. While some companies that track office usage show slightly higher occupancy rates, they also found that occupancy had leveled off. In Texas, cities continue to see the highest rates of return to the office, in part because many businesses in the state require employees to work in the office five days a week.

It is still easiest for tech companies to allow employees to work from home, resulting in return-to-office rates in cities like San Francisco, Seattle, and San Jose remaining low. However, office building owners are starting to see some more upbeat signals this year as the tech sector finally calls for some of their employees to return to the office. Financial services firms are increasingly embracing the hybrid working model, with only 20% of them requiring work five days a week in the office, according to Scoop.