Office Occupancy Sputtered in August as Delta Variant Foiled Return-to-Work Hopes

The Wall Street Journal – Workers in big city business districts are ending the summer back home or at other remote locations, as momentum to return to the office in the spring and early summer mostly petered out in August.

Property owners only months ago anticipated that office towers would fill up again after Labor Day, thanks to rising vaccination rates and falling infection rates. But the spread of the Delta variant and rising Covid-19 case numbers upended that calculation. As the summer wore on, most office desks stayed largely vacant, or became even emptier.

Offices in 10 major U.S. cities were just 33.1% occupied in the week ending Aug. 25, according to Kastle Systems, an access-control company that tracks how many people swipe into buildings. That figure is a slight increase over the prior week but down from a 34.8% peak in late July.

In New York and San Francisco, the two worst markets among the 10 major metros tracked by Kastle, occupancy rates were a mere 22.3% and 19.7%, respectively. Both were slightly off their July highs.

Douglas Durst, chairman of real-estate developer the Durst Organization, said that earlier this summer over 35% of the workforce in the company’s New York office buildings had returned. But the return rate in the last week of August was about 25%.

“We’re obviously disappointed,” Mr. Durst said.

The decreases are partly seasonal. Some workers go on vacation or retreat to country houses in August. But the low numbers also reflect concerns that new Covid-19 variants could put people at risk of infection in the workplace. Inc. and Apple Inc. last month said that they would delay a return to the office until 2022, and a number of major companies have moved their return date back to October or later.

“We have seen organizations start initiatives to return to work and then scale them back almost immediately,” said Xavier Menendez, who heads the real estate and workplace solutions team at consulting firm Accenture. Even a few weeks ago, many executives expected to be back in the office in the fall when their children return to school. “That sentiment has largely fallen away,” Mr. Menendez said.

Delayed returns to the office are a heavy blow to businesses that cater to office workers, such as restaurants, gyms and hotels. They are also bad news for landlords. While most tenants continue paying rent even when their offices are empty, companies that get used to working remotely may become less eager to lease office space in the future, said Daniel Ismail, senior analyst at real-estate analytics firm Green Street.

“It’s not a bold claim to think that the longer we’re away from the office, the more employees expect to retain that in the future,” he said.