RTO Orders: What it Means for the Industry

After years of remote and hybrid working models, stemming from the pandemic, many companies are issuing return-to-office (RTO) mandates. This means more bodies in seats at physical offices. This transition is sure to cause some waves in the commercial real estate (CRE) industry. So, what can we expect?

While at first this may seem like a saving grace for commercial landlords and investors who have been floundering the last few years, this might not be the case. Office vacancy rates around Boston have reached record highs and RTO policies may help, but the reality is much more nuanced. Even with RTO orders, many companies have chosen to adopt hybrid work models. Meaning that while office utilization may increase, demand for space might not return to pre-2020 levels. Companies are downsizing office footprints while upgrading to higher-quality buildings with better amenities, sustainability features, and flexible workspaces, benefiting premium office properties and leaving older buildings still struggling. Plus many companies that signed long-term leases prior to the pandemic continue trying to offload excess space, contributing to the downward pressure on rental prices and making it difficult to secure new tenants at pre-pandemic rates.

Winners: Who benefits from the RTO Orders?

✅Class A Office Spaces: Modern, well-located office buildings with top-tier amenities, energy efficiency, and flexible layouts are in high demand. Employers want to lure workers back with attractive workspaces.

✅Suburban Office Markets: With many companies adopting hybrid models, some businesses are opting for smaller, satellite offices in suburban locations rather than maintaining large downtown headquarters.

✅Flexible and Co-Working Spaces: Demand for adaptable office space is surging, with companies preferring short-term leases and flexible workplace solutions to accommodate evolving work patterns.

Losers: Who might miss out from the back-to-office surge?

❌Older, Class B and C Office Buildings: Aging office stock with outdated layouts and limited amenities are struggling to attract tenants, leading to declining property values and increasing vacancies.

❌Central Business Districts (CBDs) Facing High Vacancies: Major metropolitan areas like Boston are grappling with stubbornly high office vacancies as companies reassess the need for expensive urban headquarters. As of the end of 2024, the overall vacancy rate in Greater Boston reached a record high of 17%, marking a year-over-year increase of 310 basis points.

❌Owners with High Leverage: Landlords who purchased office buildings with high levels of debt are facing financial strain due to declining rental income, rising interest rates, and lower occupancy levels.

Want a better idea of how your space may fare? Give us a call to set up an appointment. Let’s talk.