Out of Office

Around this time three years ago, it was clear our lives were changing. We held out hope that lockdowns and social distancing wouldn’t last forever, but we did spend some time speculating about what might be permanently different. Now, life feels mostly normal, until I look around my office and see a sea of vacant desks. Offices are not the same.

A reckoning has been a long time coming. Even before the pandemic, office real estate had slack capacity in many cities. During the 2020 crisis, I started tracking monthly reports from commercial real estate (CRE) data aggregators, watching for evidence of falling rents or higher office vacancies. My research was premature. Office leases run on long cycles of up to ten years. Most businesses maintained their revenues and were able to honor their lease payments, even as some explored subletting.

As a broad category, CRE has recovered: warehouses and industrial assets saw higher demand in the pandemic, while multifamily and tourism survived a lull and are on firm footing today. Office spaces stand out as the most impaired market.