It's been about four years since the Covid-19 pandemic first upended society. Cities and towns have mostly sprung back to life, but one aspect of daily life is unmistakable: The once-ubiquitous reality of working in an office for eight hours a day, five days a week is dead.
As many companies embrace remote and hybrid work, demand for office space has weakened and property values have fallen.
The predicament for office buildings is strikingly similar to that of regional shopping malls around the turn of the century, when Americans first began to gravitate en masse to online shopping, according to an analysis from the Treasury Department's Office of Financial Research.
Many malls have shuttered since as retailers dialed back their brick-and-mortar operations.
But some zombie malls have been given new life, repurposed for other uses, in some instances after sitting vacant and abandoned for years.
"The redeveloped uses for regional malls include new retail space with a smaller footprint, mixed use, and warehouse/distribution space," Treasury's analysis said. "More eclectic options include use as a cricket stadium, a police precinct, and an indoor cannabis farm."
Could struggling office buildings also eventually be converted into housing, stadiums or indoor farms?
It's quite possible. The deciding factor is whether the commercial property market sees occupancy rates in office buildings ever returning to pre-pandemic levels.
"It's a focus of how much office space you need if people are going to work remotely and that's going to linger for a little while," John Toohig, head of whole loan trading at Raymond James, told CNN.
"And if you drill a little deeper, the office loans that are expressing distress are for buildings in urban city centers," he said.
That means empty office buildings in cities such as San Francisco and Washington, DC have a better shot at eventually becoming repurposed because of how much trouble they're in, including declining real estate values.
A report from McKinsey Global Institute said that remote work risks wiping $800 billion from the value of office buildings in major cities worldwide by 2030.
Much also depends on the viability of repurposing a failed office building, Toohig said, which usually involves a study being done to determine whether the costs of repurposing a commercial building would be worth it in the long-run.
To convert a commercial building into housing units, for example, a study would have to consider if there's enough demand for housing in the area (other studies would consider different variables.)
The outlook for office buildings in 2024 isn't very rosy.
CBRE, a commercial real estate services firm, said in estimates released Thursday that US office vacancy will likely increase further next year, reaching a 19.8% vacancy rate, up from 12.1% at the end of 2019.
Getting employees back into offices hasn't been easy for some employers. In some cases, employees are protesting return-to-office mandates, such as at X, the website formerly known as Twitter.
After a high-ranking X official said that "if you can physically make it to an office and you don't show up, resignation accepted," one worker in defiance reached out to his colleagues on Slack and and encouraged them not to resign but instead wait to get fired. (That employee got fired and then filed a complaint with the National Labor Relations Board.)
And since demand for office space will likely remain weak, building activity is expected to adjust accordingly.
"Office construction will slow to the lowest level since 2014, raising the prospect of a shortage of available Class-A space later in the year," the firm said.
Treasury's analysis said "codification of work-from-home in future employment agreements, continued increases in office space available for sublet, continued low actual worker occupancy of office space, downsizing of firms' office space requirements in new leases, continued deterioration in the value of office REIT stocks, and increases in delinquencies and defaults in the office sector" are all signs that office buildings might just be spiraling into oblivion.
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