Office vacancy rates have climbed sharply in the wake of the pandemic as many firms downsized office space due to remote work. Nationally, the United States office vacancy rate hovered around the high teens by late 2023 (nearly 17%–20%, up from roughly 9% pre-pandemic). Major city centers have been hit especially hard. These elevated vacancies reflect a lagging return of workers to downtown offices and a glut of space as leases go unused. However, for an astute investor, they might present an opportunity to outperform the market.
The Consequences of Vacancy for Commercial Buildings
As a result of the work-from-home phenomenon, office buildings have seen historically low levels of occupation, and many buildings remain empty for extended periods of time. This has led to underoccupied commercial property, decreased property value, and postponed upkeep concerns. Local economies also felt the negative impact of the vacancy, including office-dependent businesses, such as restaurants, fitness studios, and retail space.
Moreover, office landlords also faced significant financial strain, where rental revenues dropped and operating expenses did not fluctuate. Most buildings were forced to make changes to retain their significance in the evolving corporate scenario. Some buildings were adapted for mixed-use space while others were not able to retain their tenants due to outdated infrastructure.
Government Return-to-Office (RTO) Policies and Their Impact on the Economy
Without any federal mandate on the private sector, government influence on private return-to-office trends has been indirect. The Biden administration’s posture was to encourage a return to normal office routines (for instance, by ending the COVID-19 national emergency in 2022 and urging federal workers back), but it did not force private employers’ hands. Some local and state officials have also used their platform to push for office returns—for example, big-city mayors like New York’s and Washington, D.C.’s have implored companies to bring workers back downtown to support urban economies.
Even as health restrictions eased, the physical return of employees to the office has been partial. Office attendance in 2022-2023 stabilized at about 50% of pre-pandemic levels on average. In many downtowns, the weekday daytime office population remains below 60% of what it was before COVID. In other words, large portions of the workforce continue to work remotely for at least part of the week.
At the same time, hybrid work models (combining remote and in-office days) have become the new norm for many organizations. By 2023, about 71% of U.S. employers had adopted a hybrid workplace arrangement. Studies indicate over half of knowledge workers (professional office-based workers) are on hybrid schedules, with roughly 20% fully remote. Only a minority have returned to the office five days a week. About 51% of employers still allow remote work at least part time while requiring some regular in-person presence.
Preparing Office Spaces for the Big Return to Work
With this impending transition, commercial real estate (CRE) facilities managers and property owners will need their buildings ready for the rehired workforce. Previously empty buildings will require structural work, tech enhancements, and security features added for the modern workplace. Beyond general upkeep, corporations will require the setting up of health and well-being provisions for the building to deliver a secure and efficient workplace.
Flexible space options must also be considered, including common office layouts and mixed-use collaboration spaces. Employers must design the workspaces for office and work-at-home workers, keeping the physical space contemporary for the evolving corporate environment.
CRE Building Readiness Checklist for the RTO Movement
To maximize property value, attract high-quality tenants, and remain competitive in the evolving CRE market, owners and managers must go beyond operational fixes. The following strategic upgrades will ensure office spaces are future-proofed and positioned for long-term profitability:
- HVAC and indoor air quality enhancement: Implement smart HVAC systems to meet the tenants’ expectations, reduce operational costs, and enhance sustainability rankings.
- Repositioning and refurbishing the property: Repurpose the underleased office space through the addition of modern interiors, open collaborative space, and flexible leasing.
- Smart office solutions to enhance operational efficiency: Integrate occupancy sensors, energy-efficient lights, and automated desk reservations to reimagine leasing models to adapt to changing tenant demands with reduced unnecessary spending.
- Workplace safety features that impact leasing appeal: Upgrade fire safety systems, emergency exits, and ergonomic workstations to meet evolving compliance needs, as safety measures are more attractive to corporate tenants and command higher long-term lease commitments.
- Tenant experience and valuation impact: Introduce tenant experience programs, such as concierge services, event spaces, and networking lounges, to increase renewal rates. Adaptive reuse of office space in high-demand sectors like medical offices, life sciences labs, and coworking hubs can maximize asset value and revenue streams.
The Future of Office Spaces for Corporations
By prioritizing these projects, commercial office buildings can make the office environment secure and welcoming for the return of the workforce. Addressing physical infrastructure and the health and well-being of the workforce will ensure the transition back to office work is a success. Companies that make their office buildings contemporary will adhere to the latest regulatory requirements and gain a competitive edge when hiring the best talent.
Adaptability will also hold the key to lasting prosperity during this transition back to work. Organizations that proactively invest in workplace readiness will find themselves best placed to build flexible and robust office ecosystems. This is a transition from one space to another; the RTO phenomenon indicates a wider transformation like workplaces.
Prepare Your CRE Property for the Future of Work
The office rebound has begun, and the early-moving CRE owners will be the ones that thrive under this new landscape. Holding off to get prepared will equate to higher vacancy rates, lower property values, and the loss of opportunities to secure top-notch tenants. The time to invest in flexible, contemporary workplaces that meet the needs of the modern worker is now.
Prepare your assets now—increase infrastructure, enhance security, and add flexible office options to attract top tenants and deliver solid returns. Check your building’s readiness today and take the lead.
Ben Reinberg is the founder and CEO of Alliance Consolidated Group of Cos. LLC, and he is an investor, mentor, podcaster, and philanthropist with a multibillion-dollar commercial real estate portfolio. He is also author of “Hard Assets and Hard Money for Hard Times.”