Affected by the new crown pneumonia epidemic, companies with large office buildings have spent two nightmare years. Today, more office workers are returning to their desks, but in big cities such as New York, Boston, Atlanta, and San Francisco, the attendance rate of office workers is still far lower than before the epidemic.
Companies are opting for smaller offices, and office building owners are saddled with staggering prices for vacant office space. More vacant office space will hit the market in the coming months as companies such as Meta lay off workers, with more than 100,000 technology company employees already out of work in 2022, according to data from layoff tracking sites.
Higher interest rates also create more problems, with many homeowners no longer willing or able to acquire, renovate older buildings, or build new ones. Looking at office buildings with significantly underutilized rates, some owners are ceding their properties to lenders. Others have started converting office buildings into residential buildings, but this requires a significant investment and takes years.
Wall Street investors believe that the office building industry is falling into a deep recession, and the stock prices of owners and developers are approaching or lower than the lowest point during the epidemic, significantly lagging behind the performance of the broader market. The value of U.S. office buildings could plummet by 39 percent, or $454 billion, over the next few years, according to recent research by professors at Columbia University and New York University's business school.
"We're seeing a lot of tenants who don't renew their leases and are either working entirely remotely or switching to offices that rent smaller spaces," said Columbia Business School professor Neuwarberg.
A flagging office sector could hamper the recovery of cities that depend on commercial buildings for jobs and tax revenue. New York City, for example, collected about $6.8 billion in property taxes as of June, equivalent to about 9% of the city's total tax revenue, down from $7.5 billion in the previous fiscal year. The Office of the New York State Comptroller estimates that the market value of New York City office buildings will drop by $28.6 billion in 2021.
In the United States, empty offices have become a national phenomenon. Total office space leased in the U.S. through September was nearly a third lower than the quarterly average in 2018 and 2019, according to commercial real estate services firm Avison Young. Office vacancy rates across the U.S. are at a record 19.1%, with Houston and San Francisco both topping 20%, according to Commercial Real Estate Services.
Even so, owners believe demand will eventually return. Rudin, chief executive of New York-based developer and owner Rudin Management, said businesses often opt out when the economy is bad. However, every time the economy improves, corporate executives change their minds. Today, working from home is not limited to coastal areas of the United States, and even in Texas, office attendance has not yet fully recovered.
The data shows that the official attendance rates in Dallas, Houston, and Austin were 53%, 57%, and 62% respectively before the epidemic. Additionally, owners are finding that some tenants are using far smaller spaces than before.
According to Professor Neuwerberg's calculations, the average annual cost of office space per employee in New York City is about $16,000. "That's real money, and the company is trying to save that part of the cost," he said.
