National Public Radio officials thought they had a solid plan. Over a decade ago, they began to create new offices in the NoMa neighborhood of Washington, D.C., to consolidate 800 employees in three buildings. The $201 million adaptive reuse of an old warehouse plus a new seven-story tower opened in 2013 with soaring ceilings, a 24-hour wellness center, a gourmet café staffed by a resident chef, and dozens of bike racks to encourage cycling. There’s only one problem: hardly anyone works there now.
At least three-quarters of densely packed cubicles that dominate entire building floors sat eerily unoccupied during a tour for the American Institute of Architects annual convention, held in June, and it wasn’t because reporters were out covering stories. Due to work-at-home policies, few writers and editors take advantage of the building’s $44 million in top-shelf audio and multimedia equipment, 14 studios, and six recording booths.
The ghostlike NPR building, built partly with taxpayer support, may be a worst-case scenario. Already a leader in using temps to staff its news operation, the organization cut 100 salaried employees last year to make up for a $30 million budget deficit. Even before the pandemic, many NPR writers and editors worked from home using cell phones to record calls and inexpensive personal computers to capture videos and edit audio and video.
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Transforming Vacant Offices Into Dynamic Mixed-Use Hubs: Solutions for Unoccupied Buildings in U.S. DowntownsThe nation’s capital city has emerged as a hotspot in a brewing office building crisis that threatens the national economy. The U.S. Government Accountability Office reported last year that 17 of the 24 federal buildings it examined used 25% or less of their buildings’ capacity, prompting agencies to order workers back to the office. Those edicts had a marginal impact, partly due to pushback from unions representing nearly 200,000 federal employees who work in D.C., but also due to the strong preference of those employees to work from home.
It’s difficult to say just how empty the nation’s 970,000 office buildings are. Unleased and vacant office space stood at 19.8% in the first quarter of 2024 and will rise to 24% by 2026, according to Moody’s Analytics. That forecast understates the severity of the predicament because leased space sits empty, too, due to work from home. A trend toward tenants subleasing office space—the practice has grown by nearly 130% since the second quarter of 2020—further understates the severity of the situation.
Kastle Systems may keep the best barometer of office occupancy. The company counts keyfob, app, and keycard hits to enter buildings in its 10 largest markets. The Back-to-Work Barometer, used even by federal government economists, shows that office buildings in these markets were only 47.9% occupied at its last count. If you’re in downtown D.C., you can feel the impact: fewer people walk the streets at lunch or during commuting hours, even if the buildings remain.
The situation may not be a full-blown crisis, but empty office buildings selling for a fraction of their value only five or 10 years before make weekly headlines. An empty St. Louis tower valued at $205 million in 2006 recently sold for about $3.6 million. In San Francisco, a vacant, 16-story Market Street building that once housed WeWork offices sold for a tenth of its 2016 sales price. A 12-story office building in Chicago’s Loop business district sold for $4 million, compared with the $51 million the property last sold for in 2012. The tallest tower in Fort Worth, which sold for more than $137 million three years ago, sold for $12.3 million at foreclosure.
Office building values have dropped by more than 35% so far in this cycle, according to Green Street Advisors U.S. Commercial Property Price Index. Morgan Stanley estimates the decline could reach 40%, rivaling the magnitude of the 2008 financial crisis. The situation threatens more than $38 billion in office buildings with default, foreclosure, or other forms of distress, according to data firm MSCI. Many of them should not have been built in the first place.
Large banks have disclosed losses on commercial building loans. Bank of America charged off $100 million tied to eight office buildings. Wells Fargo took $377 million in write-offs. Financial markets fear that losses will spread into poorly capitalized local banks as more than $1 trillion in commercial real estate loans come due over the next two years. Green Street estimates that local and regional banks hold 75% of commercial real estate loans. “The damage could metastasize into a full-blown financial crisis if scores or even hundreds of small- and midsize commercial banks fail simultaneously,” according to an economist for The Conference Board.
Some of the nation’s most prominent property owners—RXR, Columbia Property Trust, Brookfield Asset Management, and others—have defaulted on commercial property loans issued before the pandemic. According to a Wall Street Journal article, five to 10 towers are added each month to the list of properties at risk of low occupancy, expiring leases, or maturing debt that banks would finance at a higher rate. Banks have a choice: extend loan maturities on devalued properties or declare them in default. They can rarely access the property owner’s other assets, which are protected by loan agreements.
Many corporations, of course, brought the vacancy situation upon themselves by cramming employees into open office spaces, claiming that money-saving “densification” would foster collaboration and innovation. Now, employees ordered to work from home during the pandemic don’t want to return, especially if they have to spend $22 (or more) and two hours a day commuting. It’s no coincidence that the cities with the highest office vacancy rates—D.C., New York, Seattle, and San Francisco—also have the highest housing costs. Living far out of town to afford a home increases a commute’s monetary and social costs.
Truth be told, employers don’t want to lose the work-from-home option either. As NPR reported, the National Sciences Foundation used liberal work-from-home rules to hire brilliant scientists living throughout the country. The option also gives employers leverage to retain key staffers who need to move for personal reasons. Moreover, according to the Society for Human Resource Management, retaining employees saves companies thousands of dollars spent to recruit new employees, between $7,500 and $28,000 in hard costs alone. And lest we forget (because CFOs don’t), fewer office employees translates into lower overhead.
Another factor creating vacancies that seem to have escaped the attention of mainstream media is the growing trend of corporate outsourcing. Big service companies often farm out their IT, sales, and, increasingly, HR functions. By doing so, they acknowledge that these outside companies function more efficiently and less expensively than staffers chained to an office desk. Workers who remain on payroll may perceive hypocrisy. You want me to come back to the office so that I can be more productive, they ask, yet you continue to farm out jobs?
The Kastle data provide an intriguing glimpse at work-from-home patterns. Office attendance significantly declines on Mondays and Fridays and peaks midweek. “Indeed, peak occupancy days feel like the pre-pandemic bustling work environment,” the company claims, “but our data doesn’t reflect that occurrence five days a week.” A recent study of hybrid work patterns conducted by Nicholas Bloom, a Stanford University researcher, showed that resignations declined by as much as one-third. At the same time, employee performance and satisfaction equaled or exceeded traditional pre-Covid work schedules. Bloom worked alongside Chinese co-authors to study behavior at Trip.com’s Shanghai office.
The pandemic dramatically accelerated a 50-year work-from-home trend, according to data from WFH Research. Workers spent 61.5% of their time at home at the pandemic’s peak, a figure that has since retreated to 27.1%. Even so, that’s four times higher than the 7.2%t rate before the pandemic. WFH’s research demonstrates that back-to-work edicts had a marginal impact. Surveys of employees show that even at current work-from-home levels, employers offer fewer fully remote jobs than employees want.
The situation has set off a rush to re-create the modern office so that it’s better attuned to desired work patterns. At the AIA convention, Melissa March of PANARCH suggested that in the future a day at the office will be more like “a localized business trip.” A day at the office may include an onsite meeting, checking emails outdoors, a group fitness session, and offsite meetings over lunch and coffee. Other speakers suggested that employers need to get in the “hospitality” business to attract and retain office workers.
Some empty offices will no doubt be repurposed into other uses. City officials in San Francisco and D.C. have focused on converting commercial buildings to apartments to address a paucity of affordable housing. That’s an expensive proposition. Developers will need to bring more light to dark interior spaces and run electrical and plumbing to individual apartments, among other retrofits. Fairfax County, Virginia, suggests that the empty buildings could become schools, self-storage units, vertical farms, data centers, biomedical labs, or homes to light industrial businesses.
The bottom line is that city skylines, once a source of urban pride, are now a huge deception. Too many buildings, especially ones in marginal neighborhoods, stand empty, mute reminders of a time when employers could dictate work patterns and use that to their financial advantage. The environmental toll is lamentable, considering the huge contribution buildings make to global warming. Consolidating all the empty space in the nation’s roughly 970,000 office buildings produces 194,000 empty buildings, a monumental waste of concrete, steel, glass, brick, and more. The solution will be neither easy nor quick.
