Half a Million Employees Will Be Forced Back to the Office by January. Is It Enough to Save Struggling Landlords?

Between now and January, 500,000 employees will be forced to follow new office mandates — though not all industries will be subject to the same requirements. 

The moves follow one million employees returning to in-person work in September and also in May, according to a report by commercial brokerage JLL. An increase in mandates has the potential to reverse the trend of businesses cutting their office footprint and stepping away from leases. 

JLL determined that at least half a million workers will be required to return to the office based on public announcements and conversations with the firms themselves. That includes companies like Linkedin, Comcast and IBM.

Still, previous requirements have caused blips in office foot traffic, but have failed to make strides in attendance.

Despite office-using industries expanding their headcount by 6.3% since 2019, they have condensed their office portfolios by 6.1%. However, that could pause as companies limit remote hiring. In July and August, 9% of job postings on LinkedIn were listed as remote, down from over 20% of jobs in early 2022.

A return to the office is encouraged by office landlords who are facing maturing loans and increasing vacancies as leases expire.

Leasing activity over the past four quarters is down 34.6% from 2019 levels. However, much of that can be attributed to technology companies and flexible office providers, which have made up nearly half of that decline. 

Technology companies have signed just 21.1 million square feet of leases in the past 12 months, down from over 50 million square feet pre-pandemic. Flexible office providers, who leased over 15 million square feet in 2019, have been relatively inactive over the course of the pandemic, leasing 2.7 million square feet over the last 12 months.

The legal sector has instead become a major tenant, with many firms adopting a four-day attendance requirement. 

Since the beginning of the year, nearly 20 million square feet has been added to the sublease market, with companies hoping that someone else will pick up their unused space. 

Still, rents have marginally increased as older buildings are converted to other uses and new buildings, with a plethora of amenities, finish construction. Overall asking rents increased by 0.5% since the last quarter to $39.50 per square foot, with more than 40 leases signed with a base rental rate of over $100 per square foot. At SL Green’s One Vanderbilt in Midtown Manhattan, AIMCO signed a nine-year lease at $247 per square foot, making it the most expensive lease of the year yet.

Meanwhile, nearly 20 million square feet of space has been removed from the market so far this year for conversion to another use.