Return-To-Office Rebounding After Delta Variant Slowdown

Nearly 50 million workers switched last year from an office environment to work-from-home (WFH), allowing large parts of the U.S. economy to continue functioning despite social distancing requirements during the pandemic. As other sectors began to recover from the shutdowns last year, however, large numbers of workers remained at home, causing some concerns about possible longer-term impacts of WFH on the markets for office commercial real estate. Despite some twists and turns due to the Delta variant, the most recent news suggests the return-to-office (RTO) is rebounding.

The RTO began as the economy started to reopen, and proceeded through much of last year. 16 million workers had returned to the office by October 2020, a one-third decline in WFH in six months. Being back in the office has always been contingent on progress in bringing the pandemic under control, however, and the surge in COVID cases late last year brought about a partial reversal in RTO in November and December.

Fortunately, RTO regained momentum earlier this year as tens of millions of Americans received vaccinations against the coronavirus. By July 2021, the number of people working from home had declined nearly 60% from its peak in May 2020. (I discussed the progress in RTO in an earlier Forbes article in July 2021)

More recently, there has been both good news and bad news about the return to office. First, the bad news: The surge in COVID infections beginning in mid-July due to the Delta variant has had a significant negative impact on labor markets. Job growth slowed, with monthly increases in payroll employment falling by 70%, from an average of more than 700,000 per month from February through July to averaging 280,000 in August and September.

RTO hit a speed bump as well. The number of employees working from home increased nearly 400,000 in August and was little changed in September. This setback was not as large as the reversal that occurred last winter, but nevertheless has pushed back the timetable for a more complete return to the office.

In the past several weeks there has been another shift, back towards more good news for office markets. To see this, we turn from the statistics cited above, which are drawn from a special set of questions that the Bureau of Labor Statistics (BLS) added early in the pandemic to the survey used to calculate the national unemployment rate, to new information from Kastle Systems, a company that provides security systems for office buildings. Kastle has been publishing a weekly measure of occupancy in office buildings based on building access security card swipes by its business partners in ten major cities. While this report is based on a much smaller sample than the national statistics from BLS, it has the advantage of showing more recent weekly changes, and has details on differences across the ten major cities.

Building occupancy through the summer shows a similar trend in the Kastle report as the national figures from the BLS, declining for several weeks in August and September as new cases of the Delta variant rose rapidly. More recent data from Kastle show, however, that building occupancy began to rise again in late September and early October. Indeed, building occupancy for the 10-metro average as of October 13 (the most recent data) was above the mid-July peak, and is the highest since the earliest weeks of the pandemic in March 2020.

There are differences across the ten metros that are worth noting. New York and San Francisco had the largest declines in office occupancy early in the pandemic, with the Kastle building occupancy measure reaching lows of 4.3% and 7.7% of the pre-pandemic norms, respectively. Other cities did not experience as large a decline; for example, office occupancy in Dallas never dropped below 20%.

Occupancy rose in all ten metros from the low point in April 2020 through the mid-summer peak in July 2021, and occupancy in three cities in Texas—Dallas, Houston and Austin—briefly topped 50%. By early August the building occupancy was falling in all ten cities, and reached a low point in early- to mid-September.

Occupancy began rising in all 10 metros in the second half of September, and by mid-October occupancy in seven of the 10 metros had risen above mid-summer highs. These trends suggest that the return to office is underway again, and may gain momentum in the months ahead.