A new trend in the commercial real estate sector has been the cause of much debate and possibly even more conjecture. Boils down to this – will the return to office (RTO) save our beleaguered office sector, or are we in for an extended period of remote work? This has become the billion-dollar question for institutional investors and real estate moguls alike. Here’s my take on it.
Let’s start with a quick look at some of the companies leading the dialogue around this shift. Tesla made headlines in 2022 for its RTO mandate requiring a full five days a week back in the office. Major players like Amazon, Goldman Sachs, J.P. Morgan, Morgan Stanley, X, Dell, and more have followed suit. Those office policies often come laden with the threat of decisive action against non-compliance.
However, something is not quite adding up. Let’s dig a bit deeper into this conundrum.
Office Attendance Data
Before we take these RTO announcements at face value, we ought to consider the actual numbers. According to Kastle’s back-to-work barometer, which tracks entry into their client’s office buildings, the average occupancy in the top 10 office markets remains frighteningly stagnant, lingering around 54% since the start of 2023.
Far from the pre-covid occupancy of 100%. Houston stands slightly above at 65%, while Philadelphia brings up the rear at 44%. The work-from-home (WFH) epicenter, San Francisco, is only hovering at 45%.
And let’s not disregard the significant difference in occupancy rates between different days of the week, with Friday, January having an average occupancy rate around 37% compared to Tuesday’s 63%.
The Rise of Hybrid Work
Add to this the meteoric rise of hybrid work arrangements, and we see a fascinating picture emerging. In late 2024, amongst full-time employees, 13% were fully WFH while 26% were in a hybrid situation. That asserts that a staggering 39% of employees were partially or fully WFH.
We see the highest predominance of WFH/hybrid conditions in the Information, Finance & Insurance, Wholesale trade, Professional & business services, utilities, and real estate sectors.
The Companies Arranging It Differently
Amidst all of this, several companies have opted for a hybrid work model or even complete WFH models. Google, Microsoft, Apple, Starbucks, Adobe, Meta, and numerous small companies are playing it by ear with an average of 2-3 days in office.
Meanwhile, other companies like Nvidia, Airbnb, Coinbase, Dropbox, and numerous startups switched entirely to WFH models. These companies are drawing attention not with flashy headlines but with their rapid employment growth, efficiency, and popularity amongst employees, questioning the hopes that RTO will bail out the office sector.
The Verdict
In conclusion, while the idea of RTO saving the office sector has been splashed across headlines, it may be too early to draw such definite conclusions. The actual office attendance data paints a much less rosy picture for commercial real estate investors.
The landscape of workplace dynamics is ever-evolving, and the lure of WFH or hybrid work models remain high amongst industry professionals. Companies succeeding with these models might just be the lifeboat in an ocean of uncertainty that the commercial real estate sector currently finds itself in.
While it’s crucial to remain informed about these trends, what’s most important is to adapt and evolve in this fluid environment. So, let’s keep our eyes peeled and see how this narrative of office attendance and WFH develops. Happy investing!
