Office Vacancies Rise as Work from Home Takes Root

KEY WEST, Fla. – Office vacancies are at record highs in the U.S.

A year-end report from Moody's Analytics found the national office vacancy rate ended 2023 at a "record-breaking 19.6%."

What's the culprit?

Remote work born from the coronavirus pandemic is fully rooted for many workplaces and expected by many workers for certain occupations.

There are also significant declines in job postings for office jobs as automation, artificial intelligence and corporate restructurings change the economic landscape and reduce workforces.

According to Moody's, the previous record high for empty offices was 19.3% in 1986 and 1991 during the savings and loan crisis. Moody's also found new office construction in 2023 (24.5 million square feet) is the lowest since 2012.

Remote work is here to stay for many workers – with many permanently at home offices or working hybrid models of two to four days at home and limited office time.

"The permanence of dynamic hybrid models has effectively muted office demand, making the year of 2023 the most downbeat since the Great Financial Crisis," Moody's economists Thomas LaSalvia, Lu Chen and Nick Luettke write in their year-end analysis, referring to the Wall Street and global financial upheavals of 2007 and 2008 and resulting recession and real estate crash.

Other commercial real estate firms also see record-high vacancy levels.

According to real estate firm Avison Young Inc., 23.4% of U.S. office space was available for lease in the fourth quarter of 2023. That includes 27.4% of Class A space.

Vacancy and availability rates are north of 30% in Atlanta, Dallas and Austin and ended last year at 36.2% in San Francisco, according to Avison Young's Q4 numbers.

Among other large markets, vacancy rates ended the year at 26.4% in Chicago, 19.2% in Manhattan, 23% in Los Angeles, 29.6% in Houston, 21.9% in Minneapolis-St. Paul, 29.8% in Denver and 19.1% in Miami.

The commercial real estate firm said office space needs could continue to be downwardly impacted by significant drops in postings for office jobs in fields such as finance, media, public relations and insurance as well as a decrease in job openings in markets such as San Francisco, Charlotte, New York, Tampa and Atlanta.

Impactful actions

Many employers across the U.S. have set their post-pandemic paths on remote work and whether and how to require workers to be at the office, according to Alicia Scott-Wears, content director for World at Work, a Scottsdale, Arizona-based human resources association.

While some bosses yearn to require workers to be physically present, contemporary realities, including labor preferences and employee retention, are often resulting in hybrid work models where employees can work at home but are required to show up at offices an expected number of days each week or month.

That is becoming accompanied by some tracking of employees' attendance and productivity via wi-fi usage and badge swipes.

Scott-Wears said employers and managers need to tread carefully on these fronts otherwise they run the risk of losing existing employees and could find themselves struggling to hire new ones.

"The manner in which employers approach the implementation of their preferred strategy will be an impactful aspect. An organization's culture not only influences the decision for the chosen path of workplace flexibility, but how the organization rolls that out will in turn impact the culture and perception of the organization," she said. "Organizations will want to take care not to erode trust and positive culture they have worked long and hard to build, which could easily occur if adequate consideration and thoughtful practice in implementation are not taken with return to office efforts."

Scott-Wears said many job applicants prefer work-from-home jobs but she's seen a drop in those types of jobs listed by employers. The result is high numbers of applicants for jobs with remote options.

"However, even though there are fewer remote jobs, those are the positions receiving the high interest and application submittals. So even though it may not be the expectation, there is certainly a desire and preferential availability to the talent with remote work," Scott-Wears said.

Working from home has made suburban office locations more popular for employers with hybrid models, according to Moody's.

Best places for remote work

An analysis of U.S. Census Bureau occupation data by SelectSoftware Reviews (SSR) found the District of Columbia (54%), Colorado (37.3%), Maryland (37%), Massachusetts 36.4%), Utah (36%), Washington (34.8%) and Minnesota (33.7%) have the highest percentage of remote workers.

Telework has also allowed some workers to relocate to smaller towns and rural areas since they are no longer tethered to metropolitan commutes.

Real estate agents and brokers from Montana, Wyoming, Idaho and Florida say they have seen remote workers relocating from more urban and many times more expensive coastal areas. Some are taking advantage of states with no or lower income taxes while others are looking for less expensive real estate and more hospitable places for their small businesses or freelance work.

"We are seeing a lot of small business owners and workers relocating here. I think the main driver is the healthy economy, good schools, low crime and abundant choices of recreation," said Mike DeVries, a broker with McCaw, Devries, Steinhauer and Company Real Estate in Bozeman, Montana.

Technology sectors are also growing in the Mountain West.

"I think there is more tech coming here and not just computers and software stuff. There are a surprising amount of smaller high-tech manufacturing businesses that just do their thing and stay under the radar," DeVries said.

According to Massachusetts-based SSR, Mississippi (11.9%) and Louisiana (13.7%) had the lowest percentages of teleworkers. Among other states, 29.9% of California workers report doing at least part of their jobs remotely. That figures stands at 31% in Oregon, 23.6% in Idaho, 25.4% in Wisconsin, 25.2% in Florida, 27% in North Carolina and 24.2% in Ohio.

By the numbers

According to year-end 2023 figures from the U.S. Bureau of Labor Statistics, 21.9% of American workers report teleworking some hours on the job, with 10.5% working totally at home.

Overall, 21% of private sector workers, 33.5% of federal workers, 22.6% of state government workers and 9.8% of local public sector workers (which include police officers, firefighters and public works employees) have telework options, according to BLS.

For some professions, remote work, including totally working from home, is increasingly the norm.

Two-thirds (66%) of workers in computer- and mathematical-related jobs work remotely, with 38.3% of tech workers completely out of the office.

Among other professions, 43.2% of employees in media, design, arts and sports-related office jobs work remotely at least some of the time, with 22.7% completely working from home, according to BLS.

More than half (52.6%) of lawyers and other legal workers work remotely some of the time, but only 18.2% are completely remote.

Demographically, Asian men are the most likely to be able to work remotely, with 33.4% reporting they work remotely some of the time. Just over 30% of Asian women, 24.4% of White women and 21.3% of Black women are able to work remotely for some of their occupation, according to December figures from BLS.

That compares to 20% of White men, 12.3% of Black men and 8.5% of Hispanic men working remotely for some of their jobs.

A lot of that has to do with the types and level of employment. Some jobs – ranging from graphic designers and news editors to software engineers and programmers – can work from home.

Women, especially those with college degrees, are more likely to work in office settings that now afford telework options. Employees with more education and higher pay levels are more likely to be given remote work options than lower-paid, frontline, blue-collar and part-time workers.

"The type of work to be performed also plays a large role. If the nature of the work is not conducive to a remote environment, then there is unlikely to be as much demand or push for it with those roles. On the other hand, there are many professional positions that are readily feasible to be performed from anywhere and highly conducive to remote work which then also opens up talent pool options for the employer," Scott-Wears said.

Is AI coming for your job?

But those same employee groups who are able to work from home are also more likely to have jobs that could be impacted by artificial intelligence and automation.

An analysis by the Pew Research Center, 19% of U.S. workers have jobs that could be impacted by AI. That includes potentially being replaced. Women are more likely than men to be jobs impacted by AI. Asians are the potentially most impacted racial group, and higher educated workers have more automation exposure professionally, according to Pew.

Some of the jobs likely to be most impacted – and potentially most at risk from AI – include budget analysts, tax preparers, data entry workers, technical writers and web developers, according to Pew. Frontline workers and service providers such as barbers and hair stylists, construction workers, childcare workers and those working at restaurants and hotels are the least likely to feel the employment effects of AI.

Scott-Wears said larger employers are more equipped for telework options and it allows them to take advantage of larger labor pools less dependent on geography and commute times. That might give them some competitive advantages in attracting and retaining workers.

"The size of the business is also a factor as larger multinational organizations have a higher likelihood to be better prepared for a more flexible or remote-first approach as they often have fewer obstacles through culture, connection or technology platforms, etc." she said.

© Copyright 2024, The Key West Citizen, all rights reserved.