Return-to-office mandates have largely failed to restore 2019 occupancy levels. The "Hybrid Office" is the permanent state of affairs. This has created a bifurcation in the commercial real estate market: Class A trophy assets with amenities are booming, while older Class B and C buildings are facing foreclosure.
The Flight to Quality
Tenants are downsizing their footprint but upgrading the quality. They want offices that "earn the commute"—gyms, outdoor spaces, and high-tech conference rooms. Developers who can deliver this "hotelification" of the office are commanding record rents, while owners of obsolete buildings are handing keys back to lenders.
Adaptive Reuse
The biggest opportunity—and challenge—is converting empty offices into residential units. Cities are offering tax incentives to spur these conversions to solve housing shortages. Construction firms and architects specializing in adaptive reuse are the unexpected winners of the remote work revolution.