The Office Market Had It Hard in 2023. Next Year Looks Worse.

livemint.com:

Office building owners, hammered by falling demand and high interest rates, struggled in 2023. But they mostly managed to stay afloat. That is going to be a lot harder to do next year.

Many landlords have been able to extend their loans, often by putting in more capital. But a lot of those extensions are now expiring, and owners are losing hope that occupancy rates will rebound soon. That means many more office landlords will be compelled to pay off their mortgages, sell their properties at a steep discount or hand their buildings over to their creditors.

“In 2024, it’s game time," said Scott Rechler, chief executive of RXR Realty, a major owner of office buildings in the New York region. “Owners and lenders are going to have to come to terms as to where values are, where debt needs to be and right-sizing capital structures for these buildings to be successful." Office demand shows no sign of returning to prepandemic levels. While the number of full-time remote employees has dwindled, hybrid workplace policies look here to stay.

In the fourth quarter, 62% of U.S. businesses allowed employees to work from home some days of the week, up from 51% in the first quarter, according to Scoop Technologies. Return-to-office rates also stalled for most of 2023.

Kastle Systems, which tracks security-card swipes in 10 major U.S. cities, said that average office attendance is about half of its prepandemic level. Placer.ai, which tracks mobile phone data, puts it in the 60% to 65% range.

But it also said the return rate has topped out. The office market has shown “some monthly fluctuations but little real change in the overall trajectory," Placer.ai said in a November report. The U.S.