These days it seems like America is divided about everything. The return to work is no different. Cultural and political divisions are shaping the work trends that are defining the workplace during the coronavirus pandemic. Some of the hottest office markets have been stalled out by more cautious employee demographics. Others saw employees start to come back even before the end of the first wave of the pandemic. It is becoming abundantly clear that the geography of the return to work is impacting different office markets differently.
Occupancy data is the best metric to understand the current state of the office sector. Leasing numbers and vacancies are instructive but are largely based on long-term decision-making that doesn’t reflect current conditions. Counting how many people are actually showing up to work in the space their employer is paying for paints a real-time picture of office usage frequency that will guide future real estate decisions. Kastle Systems tracks swipes of its access control systems, compiling weekly occupancy counts tracking 2,600 buildings in 138 cities.
What the company’s back-to-work barometer shows is that, after ticking up slowly through most of 2021, occupancy numbers plummeted as we entered 2022. The spread of omicron has set many offices back to square one. Kastle’s 10-city average office occupancy was just over 30 percent this week. Looking into each city’s individual numbers begins to paint regional pictures. In Texas, office occupancy is noticeably higher. Houston, Dallas, and Austin are more than 10 percent higher than the national office occupancy averages. On the flip side, coastal cities like New York and San Francisco are more than 10 points below averages.
The return to work map looks like the inverse of vaccination maps, which themselves look like election maps. Like so many things in American life, the return to work is taking on distinct colors of red and blue. Employers in red states had forged ahead with return to work strategies while those in blue states have tapped the brakes repeatedly. Studies have shown states that voted for Biden are mostly more than 60 percent vaccinated while states that voted for Trump have lagged behind national vaccination averages. It’s hardly surprising then that the office has been embroiled in the same culture wars playing out in every state. The value of billions worth of commercial real estate is only a couple of steps removed from political divisions. Just like most political discussions, conversations around the return to work are sparking tensions.
For many employers, the return to work is a function of the workforces’ vaccination rates. Employees exercising their right to remain unvaccinated spark tension among co-workers who get the poke. Mask policies are a huge source of debate as well. Both vaccination rates and mask policies directly impact worker comfort at the office but each issue is confounded in so much political gamesmanship that it’s becoming hard for employers to navigate. The unvaccinated cry foul at the harsh judgments of their co-workers while the vaccinated are frustrated with colleagues who simply won’t follow the rules.
Small workplace political disputes create macro trends that impact office occupancy at scale. That’s been apparent front the outset. When the pandemic first began, there was a clear political divide in how dangerous people perceived the COVID-19 to be. Since then, political polling has shown time and again the American right has been less willing to wear masks, is more hesitant to get vaccinated, and is less likely to avoid indoor gatherings. Research has also shown those on the left are more likely to overstate the severity of the virus, inflate hospitalization numbers, and believe children account for a significant portion of fatalities when that’s not the case. The mess caused by biases rolls downhill, picking up steam as it shapes macroeconomic trends that impact office usage.
If you’re an office landlord in Texas, you have to feel pretty good about your assets’ prospects. Real-time occupancy rates are far above average, workers are more willing to come to work and office absorption hasn’t taken a hit. If you’re a landlord in New York City or San Francisco, your fingers are still crossed this all blows over.
New York City is sitting on nearly 70 million square feet of vacant space after two years of rising vacancy. Leasing is 36 percent below pre-pandemic levels, according to JLL. San Francisco continues to see an increase in negative absorption driven by downsizing and rapid supply expansion. Vacancy continues to tick up. Uncertainty and apprehension define the San Francisco office sector despite publicly traded Bay Area companies earning more than 1 trillion in market cap over the last 12 months.
In Dallas and Atlanta, two of the largest office markets in traditionally red states, the office sectors are optimistic. Atlanta has fared better than most other cities, posting positive net absorption for the third consecutive quarter alongside rising rents. Dallas is posting positive net absorption as well as rents and vacancy remain steady, according to CBRE. Several factors contribute to the differences in each office market but it’s foolish to think they’re immune from the influence of politics. Cities may be blue bastions but those in red states must still abide by state policies set by Republicans. Plus it is important to remember that a lot of people that work in buildings often commute to them from outside of cities, which tend to be more conservative.
Politics doesn’t define the overall strength of any individual office market. For decades the Bay Area and New York have dominated, putting them in a vaunted position that’s been difficult to maintain during such trying times. However, politics is playing a major part in the short-term disruptions each market is dealing with. Right-leaning areas will continue to see office occupancy return faster while workers in blue states push for more remote work policies. The return to work is yet another victim of our political culture wars.