The commercial office real estate sector has undergone a seismic shift in recent years, and I’ve been watching this transformation unfold from the front lines.
As someone deeply embedded in the real estate world, I want to share what I’m seeing on the ground—the challenges, the emerging trends, and what I believe businesses and investors should be considering in this new landscape.
Table of Contents
The Current State
The office market today presents a complex picture that varies dramatically across metropolitan areas. Most immediate metro and downtown areas remain devastated with very high vacancy rates, and frankly, it’s been painful to watch.
However, I’m seeing some encouraging signs in select markets. New York, Miami, and Tampa are already showing improvement—they’re rapidly increasing. Maybe there’s a signal that soon we’re going to hit a tipping point when the national market starts recovering.
But I want to be realistic here. The challenges are still significant. Delinquency rates continue to increase nationally, with commercial mortgage-backed securities (CMBS) loans hovering around 20%, which is a very significant number.
Despite these glimmers of hope in select markets, I remain cautious about a full recovery to pre-pandemic levels.
The Pandemic Effect
The root of our current situation traces back to the pandemic-driven shift to remote work.
During the pandemic, everyone started working from home, and then everyone came back when companies realized they couldn’t maintain the same level of business productivity.
This realization has led to what I’m observing as a definitive trend toward companies implementing back-to-office policies.
There’s definitely a trend of increasing back-to-office policies for companies—they’re either demanding work from the office, or at least it has to be hybrid. The federal government has been particularly clear about this, announcing that federal employees must work from the office.
The Refinancing Crisis
Rising interest rates have created what I can only describe as a perfect storm for office building owners.
Here’s what I’m seeing: office loans are typically five-year loans, and since interest rates went up and occupancy decreased, buildings cannot service the loans anymore.
When refinancing time arrives, many properties face a harsh reality that I encounter regularly in my work. The rent coming due from these buildings is not enough to pay the payments for the banks. This forces lenders to require significant loan paydowns for refinancing or extensions.
Those unable to meet these requirements face foreclosure, and I’m seeing this contribute to an increasing number of distressed properties in the market.
External Pressures
Recent tariffs and global uncertainties have added another layer of complexity that I factor into my market analysis.
These generally have a negative effect on office space demand, as companies are pausing their expansion plans because they don’t know how things are going to shake out.
Interestingly, while tariffs negatively impact office space demand, they have a positive effect on warehouses because there’s reassurance for companies that need industrial space for reshoring operations.
New Lease Reality
The hybrid work model has fundamentally altered how companies approach office space, and I see this in every deal I work on. Companies are dramatically reducing their permanent office footprints while incorporating flexible arrangements.
The math is striking: a company that previously held a 100,000 square foot lease might now downsize to 30,000 square feet of permanent space and maybe take another 30,000 square feet of co-working space for people who come in for hybrid work.
Golden Opportunities
For companies re-entering the office space market, I’m telling my clients that current conditions present unprecedented opportunities. Here’s my advice:
Upgrade to Class A Space: If you were in Class B or Class C office space and you need to go back with the workforce, lock in your Class A workspace. You’ll be able to negotiate Class A leases for Class B or Class C prices.
Negotiate Aggressively for Tenant Improvements: You can ask for way more in tenant improvements from landlords—maybe six to twelve months of rent abatements and significant TI packages for specialized build-outs.
Leverage Market Selection: There’s definitely a big selection of offices compared to what used to be before. The power is truly in the tenant’s hands right now.
Investment Strategy Recommendations
For investors with substantial capital, I’m seeing unique acquisition opportunities that I haven’t witnessed in my career.
If you were hesitant to buy an office before, if you want to buy an office as an owner-occupant user instead of leasing it, you can pick up properties right now at a real fraction of the cost.
All major metropolitan cities—Chicago, LA, DC, and San Francisco—present potential opportunities for buyers with long-term investment horizons.
However, I strongly advise against speculation on vacant properties. Instead, buy buildings that are still occupied and buy buildings at the price that current income can support.
My strategy is straightforward: if a building has 20 stories and 10 stories are occupied, you buy this building as 10 stories with existing rents. Those existing rents can support the building. You buy them as if the other 10 stories don’t exist. If they, at some point, get occupied, great—that’s upside.
Strategic Options
Building owners facing current market challenges have several paths forward:
Mixed-Use Conversion: Keep an office and do slices where there are some old-style offices, then maybe a couple of floors of co-working space, and maybe on the bottom some retail like a gym.
Residential Conversion: See based on demand and construction costs if it can be retrofitted to housing. Do complete redevelopment and see if it’s feasible based on how much rent they can demand in that market and how much it’s going to cost.
Price Leadership Strategy: Either slash prices to the lowest possible level and become a price leader—if you can still cover taxes and debt—or, if that’s not feasible, hand the keys back to the bank.
The Emerging Trend
Converting towers to residential micro-units.
I’m talking about many, many small apartments with shared common areas, including possibly even kitchens. It’s almost like student housing type of dorms, but not for students.
This model addresses what’s cost-prohibitive right now with office-to-condo conversion.
Typically, you have a windows problem—you cannot really set up typical condos with windows in the bedrooms. And then there’s reconfiguring and building so many bathrooms and kitchens.
But if the dorms-type style would have demand, you don’t have to build many kitchens; you don’t have to rebuild that heavy plumbing. You can salvage a lot of existing construction.
Timeline for Recovery
While predicting exact timing remains challenging, I believe we may be approaching a critical juncture. It feels like we’re kind of close. How close? Within three to twelve months close. Maybe there’s going to be an inflection point when that asset class starts going in the positive direction.
However, complete market stabilization will take significantly longer. To absorb entire vacancy, it’s really probably a five-year project for the country.
What I Tell Landlords
The best target right now from a tenant perspective is the Class A building that was built pre-pandemic levels, and you can lease it right now at Class C prices.
We’re talking about new buildings, modern, with a lot of amenities on the first floor—gyms, cafeterias, bike racks, maybe a spa, smoothie bar, yoga rooms—and convenient access to coffee shops, movie theatres, restaurants, schools, etc.
The Bottom Line
When people ask me about the biggest hurdle facing owners today, my response is direct: there’s not enough demand for existing office space. That’s the number one reason for everything we’re seeing.
However, for those willing to adapt, negotiate aggressively, and think creatively about space utilization, I’m seeing significant opportunities emerge.
The office real estate market stands at a critical inflection point. While the recovery timeline remains uncertain and complete stabilization may take years, I’m observing early indicators that suggest positive momentum in select markets.
Success in this environment requires understanding the new fundamentals: smaller footprints, hybrid work arrangements, premium amenities at competitive prices, and patient capital focused on existing income rather than speculative vacancy.
From where I sit, I believe we’re closer to that inflection point than many realize. The question isn’t whether change is coming—it’s whether you’ll be positioned to capitalize on it when it arrives.
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