If the office market DOA?

Excerpt from the WSJ this morning below. Cities were already having a rough go, then COVID happened. A massive shift caused by hybrid work and people moving to the suburbs. Ouch!

The emerging recovery in the U.S. office market is strikingly uneven, leaving many buildings, neighborhoods and entire cities behind.

A handful of business districts, from New York’s Park Avenue to South of Market in San Francisco, are leading a turnaround. But most office markets are still burdened with empty space and anemic rents.

The U.S. office vacancy rate is 14.1%, near a record high, according to real-estate data firm CoStar. Of the 12 largest markets the firm tracks, five are at their highest levels in 25 years and the others are just below.

Those stubbornly high vacancies reflect a crucial difference between the current office market slump and previous ones: This one isn’t cyclical; it’s the result of structural changes in the workplace.

Remote and hybrid work have rewritten employee habits and weakened the once-reliable connection between economic growth and rising office demand.

Office occupancy rates plummeted in the aftermath of the 2008-09 financial crisis, then workplaces filled up when the economy rebounded and companies started to hire again. But in 2023 and 2024, when the U.S. economy grew at an average of about 2.7% as the fallout from the pandemic faded, office landlords still struggled to fill their space.