The Office is Back, Baby! (Well, Sort of...)

Remember those early pandemic days when we could get away with wearing sweatpants to work? (Heck, I still do that on most Fridays.) Well, it looks like the party’s over, folks. Companies are starting to haul their employees back to the office, whether they like it or not.

Take Amazon, for example. They recently gave their corporate staff the old “back to the grind” speech, demanding they show up in person five days a week. And get this—they’re already scouting for a big new office space in Manhattan. I guess Jeff Bezos is tired of seeing his employees’ bedrooms during Zoom calls.

Dell and 3M are getting in on the action too. Dell’s telling their global sales team to kiss their work-from-home days goodbye, while 3M’s new CEO is practically begging senior staff to grace the headquarters with their presence. It’s like watching a bunch of parents try to wrangle their kids back home after a wild summer vacation.

The Numbers Don’t Lie: Office Vacancies and Loan Defaults

The numbers back this trend up. In the third quarter of 2023, one-third of companies were requiring full-time, in-person work—that’s up from 31% the quarter before. Looks like when the job market cools down, those work-from-home negotiations get a lot harder. Sorry folks, the free lunch and ping-pong tables aren’t enough to keep you out of the office anymore.

Now, I know what you’re thinking—this must mean the office market is bouncing back, right? Not so fast. The vacancy rate is still sitting at a whopping 13.8%, way up from the pre-pandemic 9.4%. In fact, since mid-2020, companies have ditched enough office space to fill about 3,627 football fields. (Anyone up for a game of office chair soccer?)

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And let’s talk about those loan defaults—yikes. The delinquency rate for office loans hit 8.36% in September, the highest it’s been since 2013. KeyCorp’s CEO Chris Gorman put it best when he said, “The real issue is office.” I guess that’s banker-speak for “this is a hot mess.”

Making Offices Cool Again: The Silver Lining

But it’s not all bad news. Some markets, like New York City, are actually seeing a drop in vacancy thanks to financial firms like Citadel and Ares Management expanding their footprint. It’s like watching the cool kids decide the mall is cool again, and everyone else jumping on board.

And get this—companies are learning that if you make the office a nicer place to be, people might actually want to show up! HSBC Bank leased a bunch of swanky new space at this place called The Spiral in Manhattan, and suddenly their attendance jumped from 40% to 80%. Turns out people prefer ergonomic chairs and access to the espresso machine over their kitchen table. Who knew?

Some buildings are really going all out, adding amenities like gyms, outdoor decks, and even fancy restaurants. It’s like they’re turning offices into adult playgrounds, just without the juice boxes and nap time.

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The Future of Work: A Hybrid Reality

The investors are taking notice too. Tishman Speyer just pulled off a $3.5 billion refinancing of Rockefeller Center—the biggest office refinancing deal ever. It’s like they’re saying, “Office buildings? Yeah, we still believe in those!”

So where does that leave us? Well, we’re not going back to the old days of mandatory five-day office weeks. (RIP, accidental reply-all emails.) But it’s clear the pendulum is swinging back towards more in-person work. As my friend Dylan from Green Street put it, “Things are looking better from a valuation perspective of the office sector than they ever have.”

Of course, the real estate market is kind of like my gym membership—there’s always hope for a comeback, even if the reality is a bit more complicated. But hey, at least we can ditch the sweatpants for good, right? Now if you’ll excuse me, I need to go iron my best button-down. Bossman says it’s time to show my face around the office again.

*This article is based on publicly available sources and is intended for informational purposes only. We do not claim ownership of the content used and encourage readers to refer to the original materials from their respective authors.

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