2024 Was the Year Return to Office Finally Tipped in Real Estate’s Favor

Pick your positive.

Nationwide, more newly available office space was occupied than vacated in the third quarter of 2024 for the first time in two years, according to Colliers (CIGI). In September, Amazon became the most notable company yet to require its employees to work in-office five days a week, a policy that will take effect in 2025. (Could it have been a coincidence that just this month Commercial Observer also reported that Amazon is taking a 340,000-plus-square-foot lease in Midtown Manhattan?) And JLL (JLL) reported that office availability levels nationwide declined last quarter for the first time in five years.

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On the public sector side, the incoming Trump administration declared that federal workers would need to be in the office full time next year, or find another job.

While the office market has been perilous and stress-inducing for most owners and brokers since March 2020, those same executives are now seizing on these recent indicators to start describing the sector in not-so-apocalyptic terms.

“The office market around the U.S. has been in a very challenging spot over the last four years. We have really noticed over the last two quarters that things have been stabilizing,” said Julie Whelan, senior vice president and global head of occupier thought leadership and research consulting for CBRE (CBRE). “I’m hesitant to say ‘recovering,’ because this is going to be a slow journey. However, we feel that we have reached a point of stabilization, which means that organizations don’t seem to be downsizing as much. We believe that leasing activity should continue to pick up.”

Enough economic and sector-focused data points are heading in the right direction as of the start of the fourth quarter of 2024 to allow for optimistic viewpoints on the near future of the office market.

The Colliers report notes that sublease availability nationwide fell for the fifth consecutive quarter, ending the third quarter at 220 million square feet. The report made the point that “large blocks of space are not being dumped onto the market in the same volume as between 2020 and 2022, limiting oversupply of available space.”

An Avison Young quarterly report, meanwhile, showed a 14 percent increase in average renewal square footage compared to the pre-pandemic numbers from 2019.

The company has also created the Office Busyness Index in partnership with foot traffic tracker Placer.ai, designed to measure office utilization. While September 2024 numbers indicated that “office buildings across the U.S. are 62 percent as busy as they were in September 2019,” Danny Mangru, Avison Young’s senior manager and U.S. office lead for market intelligence, noted the index was 7.5 percent higher overall than it was at the same time last year.

Mangru said that the movement toward a return to office is a major factor in generating this positive news.

“Three years ago, a lot of return-to-
office policies were not cemented, and it was challenging for occupiers to figure out,” said Mangru. “Now, return-to-office policies have been cemented, which is cementing space utilization. So, if a company knows they have X amount of employees, they know how much space they need because they’ve got their schedules fixed.”

In addition to Amazon, big corporate tenants such as Walmart, Starbucks, Dell and Salesforce issued return-to-office mandates this year. Big Four accounting firm KPMG recently released a survey finding that 79 percent of CEOs envision the working environment to become entirely in-office over the next three years. Earlier this year, that figure was only 34 percent.

This renewed certainty regarding companies’ space needs is leading to companies taking more space for longer periods.

“Many organizations now are more comfortable renewing over the longer term because they have an idea of what the office is supposed to look like for them,” said Whelan. “They’re not downsizing as much and, in some cases, especially the smaller companies, they are expanding their spaces because there is positive office-using job growth.”

Peter Riguardi, chairman and president of the New York region for JLL, makes a direct connection between return-to-work policies and the office sector’s changing fortunes.

“We’re seeing the direct results of return to office in the pipeline of our business,” said Riguardi. “We have more and more companies calling that need more space than we’ve seen in five years, and at least two-thirds of those companies are companies that have added people in the last few years or have more people coming to work than before COVID.”

Sarah McCann is the real estate strategy director for the architecture and interior design firm Vocon, which works with boutique firms as well as Fortune 500 companies. After several years of helping client companies shrink their office footprints, McCann is noticing a shift in the other direction.

“Human nature is prevailing right now. People want to be together,” said McCann. “Remote work is still a dynamic and a lot of companies can’t necessarily move fully away from it, but we’re not seeing as much discussion around shrinking footprints these days compared to the early days of the pandemic.”

McCann is also hearing a stark difference in how companies discuss their office requirements.

“People aren’t even questioning how much space they need anymore. They want the best space,” said McCann. “The best space in the best buildings is in limited supply right now. So people are just moving quickly to secure their spots in the best buildings. There’s a lot of momentum behind the idea of bringing people together.”

Riguardi said that, in his view, certain major office markets such as New York, Houston and Dallas are back to normal.

“The trend is definitely to come back,” said Riguardi. “Technology firms are asking people to come back. I’m not being political, but Trump will make federal employees go back to work, and that will have a huge positive impact on Washington, D.C.”

Ironically, the emergence of video conferencing has increased office utilization, he said.

“Offices are even more crowded than they were, because the advent of video conferencing is affecting business travel. We’re seeing less business travel,” said Riguardi, who noted that JLL is among the companies expecting employees to be in the office five days a week.

Mary Ann Tighe, CEO of the New York tri-state region for CBRE, noted that the sector’s turmoil in the past five years helped the commercial real estate industry tighten its focus on determining occupier needs.

“I think the New York market is in the midst of a strong recovery/transformation,” said Tighe. “Part of the aftermath of both the increase in interest rates and the impact of work from home is that we’re looking at our office stock with a much more precise focus than we’ve ever looked at it before, and we’re coming to the recognition that we’ve allowed the office stock to get too old. What the market is telling us very clearly is that you need a certain caliber of office environment to cause people to want to come in, and for people to pay the kind of rent that our cost structure in New York City requires.”

Tighe noted that half of the available office space in Manhattan is found in around 10 percent of the buildings, leading to the conclusion that this 10 percent — containing roughly 40 million square feet — are prime candidates for demolition or replacement.

David Hoffman, a vice chair at Cushman & Wakefield (CWK), reiterates that the flight to quality is alive and well in New York, which spells good news for owners of top-level office properties.

“The availability rate in the premium office class in New York is very, very low,” said Hoffman. “The demand for premium office space in Midtown is high.”

But any evaluation of the strength of the New York office market must account for the numerous factors shrinking and restricting supply.

“There is significant dislocation between the interest of the owner and the interest of the lender, which is causing paralyzation,” said Hoffman. “Many older buildings require a significant retrofit, which is expensive.

“One of the interesting things about this market, which I think is unique, is that even though the vacancy rate has gone up considerably, the cost of construction has not come down,” he added. “When the vacancy rate has gone up and leasing activity has gone down, all the pricing [usually] goes down. But it’s very, very expensive to build interiors, renovate lobbies, and put new skin on buildings. And it’s certainly very expensive to build new buildings.”

While owners of the top tier of office buildings nationwide were already prospering post-COVID thanks to the era’s flight-to-quality ethos, the combination of the increase in return to office and a dearth of supply adds up to rare good news for owners of lower-tier office buildings. These properties in 2024 saw, and should continue to see in 2025, increasing demand from those shut out of the best of the best.

“If you’re looking for a premium block of office space in Midtown, you’ve got a bit of a problem on your hands — there aren’t a lot of availabilities for large-block users,” said Hoffman. “What typically happens in New York — or any other market, I assume — is that once the big blocks go, then you’re moving to the medium-size blocks. Then the medium-size blocks go, and everything starts to amp up.”

Heading into 2025, it might be too early to say that the office sector is completely out of the woods whatever the return-to-office trends. Riguardi, though, said the speed of progress toward a healthy market appears to finally have significant momentum.

“I don’t see the current moment as a tipping point,” said Riguardi. “I see it as a snowball that made its way down a hill, and all of a sudden it’s a really big snowball. I think that’s where we are today.”