Office sector sees late-summer slump with caution around Delta-variant spread

Office sector sees late-summer slump with caution around Delta-variant spread

Various trackers for return-to-office and other metrics for the broader office market show a late-summer slowdown, owing at least in part to the Delta variant.

Data from Kastle Systems International LLC shows 33.6% of offices it tracks via keycard, fob and app-access data had occupancy the week of Sept. 15. The metros it tracks started to see a dropoff in August, after hitting a pandemic high of 34.8% in July, as Covid-19 cases resulting from the Delta variant began to surge and companies pushed back their office plans.

The most recent data from Sept. 15 is actually an uptick of 2.7% from the week prior.

Recent data from Robin Powered Inc., a Boston-based workplace-platform company, also shows fewer people in the office during the month of August. The percentage of people coming to offices three to four times a week dropped from 16% in April to less than 10% in August.

Zach Dunn, vice president of customer experience and co-founder at Robin, said the numbers from August line up with what the firm was expecting, given Delta and end-of-summer vacations contributing to fewer people going into the office.

It also echoes the decisions made by major companies to push back return-to-office dates from Labor Day to later this fall, early 2022 or indefinitely.

“The majority of people out there have not yet figured out when they want to reintegrate the office in their week,” Dunn said. “The majority of folks we’re seeing in the office regularly are probably early adopters of hybrid work.”

Jacques Gordon, global head of research and strategy at Chicago-based Lasalle Investment Management Inc., said during Nareit’s REITworks conference this week while there are signs of recovery for office, the market is nowhere near back to normal yet.

“Delta was a bit of a pause but I think there’s hope in (the Kastle System) numbers, as well as other reasons why we should be patient,” Gordon said.

Sarah Hawkins, CEO of Houston-based Hines Corp.’s East region, said in an interview this week the return-to-office has so far been more of a trickle.

“Delta has really kind of challenged that big influx of office population post-Labor Day that a lot of people were talking about,” Hawkins said. “(A trickle) is what we’re seeing in our markets … people still have concerns around Delta.”

Gorden said office usage won’t likely get fully back to normal until mid-2022, based on metrics from Moody Analytics and CNN Business’ “back to normal” index, which measures how much states economies’ have recovered to pre-pandemic levels. One of the metrics analyzed in the index is Google mobility data, which provides a window into office-building usage, among other items.

Dunn said while he’s expecting more people to work in-office at least part of the time in September and October, it’s unlikely average office occupancy will exceed 50% anytime this year.

By the end of the first quarter, more offices are likely to be full, he continued. For the rest of 2021, he’s projecting average occupancy of 20% to 30%.

Dunn said the vaccination mandates issued by the Biden administration may actually help accelerate return-to-office decisions, as it gives companies a common standard around vaccine requirements and, subsequently, office plans.

A gradual uptick in office market activity beyond return-to-office was otherwise observed earlier in the summer.

CBRE Group Inc.’s most recent monthly analysis of the 12 largest U.S. office markets, from July, showed signs of improvement through that month. Its tenant-in-market index, measuring number of tenants actively seeking space, grew to 88 in July. That’s up from a pandemic low of 71 in January. CBRE’s leasing activity index grew to 71 in July, up from up from a low of 52 in December. Among the 12 markets, Los Angeles, Seattle, Atlanta and Boston have seen the biggest gains relative to pre-pandemic activity.

Still, the report noted, August and September data may show a decline because of Delta.

“To be sure, various factors such as the Delta variant of Covid-19, have hampered both the economic and office-market recoveries as well as companies’ plans to return to normal office occupancy,” said Julie Whelan, CBRE global head of occupier research, in a statement. “We might see an influence on the indices in August or September from companies opting to delay their full return to the office. But there is some cause for optimism, due to early signs that the recent virus resurgence may be peaking.”