Once upon a time, the office was a second home for many.
Assigned desks were decorated with personal items; favourite mugs ran through the dishwasher at the end of each day; wheelie chairs were adjusted to exacting specifications. Since the pandemic, that office routine has faded. Now that hybrid working is the norm for many companies, several of the towering high-rise buildings workers used to visit daily sit empty or well below their pre-pandemic capacity.
July data from real estate company Cushman & Wakefield showed that Manhattan office buildings had a 22.4% vacancy rate in the second quarter of 2023. San Francisco’s vacancy rate has grown to 31.8%, according to real estate company CBRE, despite being closer to zero before the pandemic, with startups fighting for office space. And although buildings in central London are fuller – vacancy rates are 9.4%, according to real estate services company JLL. This rate is almost double the long-term average of 5.5%.
Even office buildings that are in use now see more sporadic traffic; they may be bustling on a Wednesday, but by Friday, they’re a ghost town. Data from global workplace insights company Leesman, seen by BBC Worklife, shows 74% of UK employees plan to be in the office two or fewer days a week, and mid-week attendance is far higher than Monday or Friday.
This means many businesses have more space than they’re using – and experts say there are few signs companies will need the real estate footprint they had pre-pandemic. Will companies hold onto these buildings, crossing their fingers workers will come back, or is a new future ahead for these once-bustling spaces?
Empty spaces
Organisations are realising they’re needing far less space than they did just three years ago, says Tim Oldman, Leesman’s CEO. In his research, he’s found Leesman’s corporate clients report they will need 30% to 40% less office space than they did before the pandemic.
Yet many still occupy the buildings they did before the pandemic. It’s a problem for the firms, who report losing revenue due to unoccupied space.
For instance, in February 2023, San Francisco-based tech company Dropbox posted a loss of more than $175 million (£138 million) in 2022 due to unused office space they’d planned to sublease. As a response to this issue, some corporations are already jettisoning spaces they’ve occupied for years; in June, global financial firm HSBC announced it will be trading in its 45-storey headquarters in east London’s Canary Wharf for a much smaller office in the city centre.
The vacancies aren’t just a result of downsizing, but also consolidation, explains Larry Gadea, founder and CEO of workplace data platform Envoy, headquartered in San Francisco. Gadea says many of Envoy’s customers have laid off a substantial number of staff and are moving into a single office, rather than having several scattered around one city. “That’s how our business is primarily being run right now,” he says, “through companies that are consolidating.”
As corporations surrender space, Oldman believes many of the buildings companies vacate will be empty for good.
“We will not be able to repurpose offices so they can serve different functions on off days,” he says. “Offices are not like the village hall – with Scouts in it one night and a knitting circle the next. They are highly tuned to the tenant organisation’s needs and their legal obligations to their employees. The idea of some sort of blended environment, where different things happen on different days, is not real.”
A residential solution?
Although some experts are sceptical that conversions and repurposing will work, some companies and cities alike are trying to combat these empty spaces from staying vacant.
In some instances, private developers are turning empty buildings into high-end apartment spaces around the world. In downtown Manhattan, developers have raised capital to convert a 1.1 million sq ft (1.02 sq m) office block into a 1,300-unit residential tower – a project estimated to cost more than a half-billion dollars (£440m). It is happening on a smaller scale, too: in Leeds, UK, a seven-storey 1960s office building will soon become 168 rental apartments.
Some companies are downsizing from their original footprints – yet experts say some have downsized too much (Credit: Getty Images)
These projects are not the norm, however. According to CBRE, office conversions accounted for just 1% of new apartment complexes in the US throughout the past 20 years, and they expect them to remain rare.
Still, according to the real estate firm, housing remains the most common reuse for unutilised office buildings, and some developers believe the office exodus has laid the groundwork for more of them – in some locations.
“We could never make the numbers work in Midtown [New York City],” Nathan Berman, founder of Metro Loft developers and a long proponent of office-to-apartment conversions, said at a New York real estate trade event in May 2023. “But what we’re seeing right now is that the values [of some office buildings] have come down to such a low point that it’s now beginning to make sense.”
Yet some experts question whether these conversions make economic sense.
“It doesn’t financially stack up,” says Oldman, speaking specifically about London skyscrapers. “The cost to refurbish these buildings into domestic accommodation means that they come to market at such a high price that they don’t fill the gap in the housing market that needs to be filled, which is first-time buyers.”
Envoy’s Gadea agrees. “There are zoning problems because these buildings only have water and facilities on one side of the building,” he says. “Even in New York, where they’ve basically given up on zoning, it’s rare that these buildings are being converted because it’s very expensive.”
Sharing space
Some businesses have found other alternatives they can put into action immediately. For instance, several companies with large footprints are taking advantage of other businesses downsizing by subleasing hundreds of thousands of square feet to firms looking for smaller spaces after vacating larger offices.
But Gadea caveats this can create another problem, which is that less space may mean there are not enough desks or meeting spaces for everyone, even with only a portion of the workforce in the building. “A lot of companies will be closing their auxiliary offices,” he says, “and bringing their employees all together into one where it’s overcapacity and high energy.”
He points out that this may help in-office collaboration, but is difficult to manage, especially as office attendance ticks up – in the UK offices that employ Envoy, the company has seen a 29% increase in workplace traffic since August 2022; in the US, they recorded an 8% increase in workplace entries between January and May this year. Data from workplace consultancy AWA’s Hybrid Working Index showed global office attendance was up 6% in 2023, compared to the previous year. In consolidated offices, these increases are much more noticeable – while they mave not have 100% of their own firm’s workers in office, the space is at capacity.
“There’s just people everywhere,” says Gadea. “They’re out of meeting rooms, they’re out of desks … it’s a totally different problem.”
Hoping workers return
The experts say it’s important to note that not every company is shedding office space. Some are holding on and upgrading their spaces to tempt workers back.
“To retain and attract the right talent – the best talent – organisations are going to have to up their game,” says Helen Hughes, director of Leeds University Business School’s Behaviour Lab, UK. “There is definitely a place for the office going forward,” she says, but “we’re going to see a pressure for organisations to build more activity-based environments.”
Hughes’ research shows only a third of workers will come into the office to do high-concentration work – so offices will need more collaborative, community workspaces, like sofas, pods and breakout areas, rather than rows and rows of desks that workers may not be interested in filling.
These improved spaces will make the office feels like a desirable destination, adds Oldman.
It’s too early to say if office buildings will stay empty, creating ghost towns across city centres, or whether we’ll see these currently vacant spaces bustling once again – whether with workers or residents. But, say the experts, change is happening, and the office high-rises we once knew will never be the same.