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COMMERCIAL OFFICE REAL ESTATE IN 2023: THE EYE OF THE STORM

Of all the real estate asset classes, office buildings face the greatest headwinds in 2023 and well into the future. In large part due to falling demand for office space and sustained negative absorption due to an onslaught of remote working arrangements, the office sector will likely never be the same as it was prior to the Covid-19 pandemic.

The research strongly shows the problems getting worse in the near term, in fact. A fourth-quarter market snapshot from Colliers International indicates the average occupier reduced their footprint upon renewal by 20% during the quarter and finds “a sizable headwind of space potentially coming to market.” This is a national trend with certain markets experiencing even more severe adjustments.

Adding to those headwinds, employers and employees remain out of alignment in terms of their expectations of employees return to the office post-pandemic, with 55% of employees believing they are visiting the office at the right cadence, compared with only 39% of employers who share that sentiment, according to the August 2022 National Office Occupier Survey released by global commercial real estate leader CBRE.

“Office utilization rates likely won’t meet employer expectations next year,” according to the CBRE report. “While most companies see office attendance as critical to their success, many workers want the autonomy to decide where and when they work. As companies find an optimal balance over the next few years, office utilization and the space needed per worker will reach a new equilibrium that could ultimately reduce demand for office space per employee by up to 20% from the pre-pandemic norm.”

This potential new equilibrium combined with historically low absorption is leading to problems for owners, tenants and lenders, some of whom are taking significant actions to reduce the burden of office interests.

“There is a lot of hesitancy around the proper course of action to deal with these office assets,” says DWC Chairman and

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