US office vacancy soars to 20-year high

Office vacancies soared to a 20-year high in the U.S. and London in the third quarter of this year, according to a report from CoStar, which provides research on commercial real estate.

In San Francisco for example, vacancy rates hit 20% in the three-month period, according to an Insider report, citing CoStar. That figure was up from 6.3% at the start of the pandemic in 2020.

San Francisco only generated $865 million worth of investment in office space in the period, less than a third of its pre-pandemic average, according to Financial Review.

“Places like San Francisco have been hit particularly hard given the level of hybrid working and levels of tech occupation over there,” said Stansfield in the report.

Overall, investment in offices "fell sharply" in the three months from July to September compared with the same quarter the previous year in key corporate hubs such as New York, according to the report.

CEOs are considering linking rewards with in-office attendance as part of their latest push to get employees back on-site, according to the recent KPMG CEO Outlook.

Also, overall commercial real estate leasing demands turned negative this year, according to another CoStar report.

Not only did property markets gain back 26 million square feet, they also “added 151 million square feet of new supply,” according to the report. 

“The big ticket transactions [are] really not happening at the moment,” said Mark Stansfield, director of UK analytics at CoStar, in a report from Financial Review. “There is still a divide of expectations between sellers and buyers.”

Why return to the office?

These reports come after an August report from Resume Builder that 90% of companies will return to the office by the end of 2024.

Companies are reluctant to give up their 9-to-5 in-person schedules for “more emotional than intellectual reasons,” says Dan Kaplan, a senior client partner at Korn Ferry, in a CNBC report.

“The message I hear from executives is, ‘We never intended for the world to change this dramatically and the office to just go away,’” he says. “Then, there’s the popular argument that people are less connected to their company and to their peers without the office, which is bad news for employee engagement and retention.”

A previous survey of HR leaders from over 600 companies found that, with remote and hybrid work models, internal communications became "a little more challenging" for 52.6%, while it was "very challenging" for 27%.

However, employers looking to bring workers back to the office should make the return “commute worthy,” according to another report.