Office buildings continue to sit mostly empty in major cities across the United States, jeopardizing the future of America’s downtowns more than two years after the COVID-19 pandemic prompted the mass adoption of remote work.
Data from Kastle Systems, a provider of access control systems for thousands of office buildings, shows that office occupancy averages just 43.8 percent of its pre-COVID baseline across 10 major metropolitan areas. Citywide averages range from 34.7 percent in San Francisco to more than 58.9 percent in Austin, with New York coming in at 41.2 percent. All told, the selected metro areas represent some 80 million people.
An accompanying chart published by Kastle dramatically depicts the slow and halting return of American employees to their fluorescent-lit workplaces since April 2020, with a huge dip in occupancy this past December corresponding to the Omicron “surge.”
Midtown Manhattan buildings in New York City on March 4, 2021. Spencer Platt/Getty Images
Whereas Kastle tracks physical office occupancy based on swipes of access cards, commercial real estate consultancies such as JLL report on office vacancy rates—a measure of how much office space is leased. JLL’s latest report shows that nationwide office vacancy ticked up during the first quarter to a new high of 19.9 percent.
Low office utilization feeds into vacancy rates because companies anticipating less on-site work by their employees are more likely to reduce their office space or choose not to renew their leases. Behind these trends lies the simple fact that millions of workers sent home in 2020 continue to telecommute. Americans were working remotely more than 31 percent of the time as of May, according to a national survey by four universities.
As with many other COVID-related changes, remote work seems to have become a permanent feature of life. Corporate giants, including Apple, Google, and Goldman Sachs, have backpedaled on return-to-office plans amid widespread employee resistance and virus fears. Work-from-home has had undeniable benefits for many Americans but has taken a heavy toll on the country’s once-thriving commercial hubs.
Office workers form the core clientele for a host of downtown retailers, including restaurants, bars, barbershops, and dry cleaners. Survey data cited by Stateline shows that a single worker typically spends up to $15,000 per year on food, shopping, and entertainment near their job in New York.
The disappearance of many of those employees, or their switch to a “hybrid” schedule in which they show up at the office only part of the week, starves businesses of vital revenue. Combined with more than two years of COVID restrictions, rising costs, and labor shortages, the emptying of downtown offices poses an existential threat to many small businesses.
New York City exemplifies these negative trends, despite official messaging that the Big Apple is making a “comeback.” Restaurant employment in the city stood at 276,800 jobs in May of this year, down nearly 15 percent compared to May 2019, the New York State comptroller found. Retail jobs totaled 305,000 in May 2022, a drop of nearly 12 percent from three years prior.
While those numbers represent a major rebound from the dark days of March and April 2020, the dearth of downtown office workers helps explain why these important sectors of the economy still haven’t recovered to pre-COVID norms.
City centers across the country are feeling similar pain. Pedestrian traffic in U.S. downtowns was nearly 28 percent below 2019 levels in May, according to data from Springboard, a retail intelligence provider. That’s despite recent gains in traffic that the company attributes largely to more employees returning to the office.
The nonprofit DowntownDC Business Improvement District measured economic activity in downtown Washington at just 52 percent of pre-pandemic levels this past winter. Theater and museum attendance hovered at around 50 to 70 percent of pre-lockdown levels, while employment at food and drink establishments was one-fifth lower in December 2021 than two years prior.
A cyclist rides his bicycle down the middle of a main road in downtown New York City on March 22, 2020. Wong Maye-E/AP Photo
Before the shutdowns, 350,000 workers poured into Chicago’s central business district on weekdays. That number stood at around 125,000 to 150,000 workers, according to data cited by Book Club Chicago in May. The Illinois Restaurant Association told the nonprofit that downtown restaurants wouldn’t see customer traffic return to pre-pandemic levels for another 18 to 24 months.
The flight from the office also weighs on commercial real estate values, threatening a major source of tax revenue for city governments. Average office property values were down 9 percent from their pre-COVID levels as of July, analytics firm Green Street reported.
Researchers at NYU and Columbia estimated that if remote work persists through 2029, the value of office buildings nationwide could plunge by $500 billion, or 28 percent below its pre-pandemic level.
In New York City, commercial properties, including office, hotel, and industrial buildings, account for nearly one-fifth of the city’s overall tax revenues. Commercial property values fell by 9.4 percent from fiscal years 2021 to 2023, with office declining by 8.5 percent, figures published by the city comptroller show.
“The pandemic’s impact and the uncertainty of office space use given the shift to hybrid work is a large enough change that we could see the percent decline in the property tax revenues nearly match the percent decline in market values for the city’s office space,” the comptroller noted.
It’s possible that converting now-underutilized office buildings into residential spaces could help revitalize struggling downtowns. Office-to-apartment conversions created more than 13,000 rental units nationwide in 2020 and 2021, according to a report last October by RentCafe. Former offices are expected to give way to more than 12,000 rental units in 2022, the company estimates.
Developers Silverstein Properties and Metro Loft recently bought an aging office building in New York’s financial district, with plans to convert it into 571 market-rate apartments over the next three to four years. The 30-story tower is currently one-third empty, the Wall Street Journal reported.
But zoning restrictions, structural impediments, and high costs make most such projects unfeasible. And the sheer scale of the vacancy problem means that residential conversions would barely make a dent. Barring a massive shift back to the office, the coming years will prove challenging for the steel-and-glass districts where Americans used to work.
Greg Isaacson
Author
Greg Isaacson spent 7 years in China and Thailand researching and reporting on business and real estate in Asia, with a focus on commercial real estate in Chinese-speaking markets as well as outbound investment from China. He has also worked as a real estate research analyst in Chicago and a real estate reporter in New York.
