The Great Return to the Office May Be Greatly Exaggerated

Google Mobility Trends and Kastle Building Access ‘Swipes’ Suggest Workplace Visitation Has Leveled Off After Initial Bounce Back

Lower levels of office space utilization have lasted longer than some anticipated. Even assuming a steady return to the office continues, it appears that a full return to previous usage levels is unlikely. (Getty Images)

By Elizabeth Ptacek
CoStar Analytics

August 3, 2022 | 10:15 A.M.

As of June, the major office-using employment sectors, which include information, financial activities, and professional and business services, have outperformed the broader labor market since the onset of the pandemic, with employment sitting more than 3% above February 2020 levels. Still, demand for office space remains relatively weak, as the expanded adoption of remote and hybrid workplace schedules has led firms to reassess, and often shrink, their physical footprints.

This shift is apparent in multiple metrics, including Kastle Systems’ “Back to Work Barometer,” which uses keycard swipe records from the security firm’s building access controls in 10 major cities to approximate office space utilization. Swipes are averaged weekly and then compared to early 2020 levels. While the 10-city average has been rising and recently hit the highest point since tracking began, it is still less than half of pre-crisis levels, sitting below 45%.

Google’s mobility data reflects similar trends, although the headline here is a bit more favorable, with total visitors to workplaces about 25% below early March 2020 levels. This measure is variable and highly sensitive to major holidays, but as with the Kastle series, a steep overall decline was apparent initially, followed by a gradual recovery.

Mobility levels appear to have peaked early in the second quarter. This could reflect several different factors, including summer vacations and the increase in infections from a new COVID variant. It may also be a result of the tight labor market, which has given employees more leverage to work from home.

Google tracks visits to other types of places as well, which helps to evaluate which impacts are related to the fear of COVID exposure and which are due to a shift in where, and how, people choose to work. The latter was certainly influenced by the pandemic but has moved beyond a public health strategy. Aside from a few COVID-related dips, visitation to retail and recreation places has returned to within 10% of pre-crisis levels since March 2021, suggesting that fear of infection is less of a factor in workplace mobility trends.

Of course, sentiment could shift again and drive higher levels of office space utilization, but the trend has proved to be quite sticky. Even assuming a steady return to the office continues, it appears that a full return to previous office utilization levels is unlikely.

The reduced impact on office demand is reflected in CoStar’s base case forecast, which expects a positive change in occupied space, but returning to more modest levels overall relative to longer-term trends. Office vacancy in turn is forecast to increase as new supply outstrips demand, with the national office vacancy rate projected to increase about 60 basis points above current levels.

(Posted with permission from CoStar)