The Return-to-Office Mandate Fails: Why Commercial Real Estate is Still Collapsing

On a Monday afternoon, stroll through the subterranean plaza beneath one of the corporate skyscrapers in downtown Los Angeles, and you’ll notice a distinct lack of activity. Since the end of the pandemic, a shoe repair shop has been operating. The proprietor, James Wallace Sears, has drawers full of shoes that were abandoned in 2020 by financial advisors and attorneys who never returned to retrieve them. He refers to them as pandemic shoes. When he reopened, he anticipated seeing his clients come back. A few did. The majority didn’t. Tuesday through Thursday foot traffic is what keeps the business afloat, while Monday and Friday are quiet enough to hear the ventilation system. Previously, the business relied on hundreds of workers passing through on their way to offices upstairs. No vacancy statistic adequately captures the state of American office life, but that detail—two dead days at each end of the workweek—does.

However, the figures are noteworthy. Approximately 25% of office space in the US is currently vacant, which is higher than the levels observed after the 2008 financial crisis, which was regarded as a once-in-a-generation event for commercial real estate. The average office building is operating at roughly half of its pre-pandemic occupancy, according to Kenneth Rosen, chair of Rosen Consulting. As leases expire, businesses are reevaluating their space needs and frequently discovering that they don’t require as much square footage as they previously believed. There hasn’t been much leasing activity, foreclosures and defaults are increasing, and the regional banks that own the majority of the commercial real estate debt are clearly nervous about their loan books. The empty downtown towers are an economic paradox that planners and lenders are still attempting to explain because this is occurring in the same economy where unemployment is low and markets have been generally buoyant.

This was meant to be fixed, or at the very least, the decline halted, by the return-to-office mandate. The list of big companies that require full or nearly full in-office attendance is constantly expanding, including Amazon, Disney, Stellantis, Home Depot, and Paramount. Andy Jassy made it clear that he wanted to reduce management layers while simultaneously calling for the return of Amazon employees five days a week. The CEO of Amazon mentioned learning, culture, and teamwork. BambooHR researchers found that 25 percent of executives privately admitted hoping RTO mandates would generate voluntary resignations and reduce headcount without formal layoff processes. Because not enough employees resigned in response to RTO demands, nearly 40% of managers surveyed thought their companies had already implemented layoffs. These findings are not incidental. They describe a mechanism — RTO as workforce reduction tool, dressed in the language of culture and collaboration — that has been noted by the people implementing the policies.

The publicly articulated justification, the productivity argument, has not fared well when examined. Stanford economist Nicholas Bloom’s research across more than 16,000 respondents in 40 countries found that hybrid workers show equivalent productivity to full-office workers while experiencing 33 percent lower attrition rates. Mark Ma’s University of Pittsburgh research tracked S&P 500 companies and found something methodologically uncomfortable for RTO proponents: firms tended to announce return-to-office mandates after their stock prices had already dropped, not before. More specifically, there was no discernible improvement in firm performance after the mandates were implemented. Ma described the dynamic plainly — managers using RTO for control and as a scapegoat for pre-existing performance problems — which is the kind of finding that tends to circulate widely in HR circles and change very little about executive behavior. Between 2019 and 2024, revenue growth for remote-first businesses was 1.7 times faster than that of office-required businesses. One direction is consistently indicated by the data.

Eight out of ten businesses that pushed for RTO mandates said they lost talent as a result. Generally speaking, a company cannot afford to lose its departing employees. They tend to be senior, highly skilled, and disproportionately women — workers whose institutional knowledge, client relationships, and understanding of existing systems took years to develop and cannot be quickly replaced through recruiting. Researchers at Cornell University discovered that office rent expenses in the city of a company’s headquarters actually predicted RTO policy more accurately than any stated productivity justification. There is organizational pressure to fill the twenty floors of a company’s midtown Manhattan lease obligations in order to justify the expense. This is not a malicious observation; rather, it is a simple financial incentive that coexists with, and occasionally takes precedence over, sincere concerns about cooperation.

In the midst of this is the commercial real estate industry. Conversion projects, which transform abandoned office buildings into mixed-use or residential complexes, have received a lot of attention as a possible remedy. The figures are depressing. Conversions take too long to absorb the existing overhang of empty space and are both financially and architecturally difficult. The majority of older office buildings lacked floor plates, window ratios, and plumbing arrangements that could be readily converted to residential use. The buildings that are suitable for conversion are currently undergoing conversion. The others are seated.

It’s difficult to ignore the fact that those who make RTO decisions—mostly senior executives used to five-day work weeks, managing from corner offices, and assessing performance through physical visibility—are frequently the least exposed to the costs associated with those decisions. The typical commuter loses five to fifteen hours a week due to travel and spends about $2,043 a year on transportation. Employees with long commutes, small children, or geographical limitations are most severely impacted by an RTO mandate, which is essentially a pay cut plus a time tax. During the pandemic, some have already moved to less expensive cities or suburbs and enrolled their children in local schools. They interpret a five-day return requirement as a move or a change in employment rather than a change in commute. In many instances, the talent market has produced the outcome that the research had predicted: those with options take advantage of them, and the companies with the strictest rules are left to compete for the remaining talent.

The office is still unfinished. Regardless of the headline mandates, it seems that most large organizations are actually settling on hybrid arrangements, which are built around purposeful collaboration days and flexible individual work time. The question of whether that equilibrium—roughly two to three days in the office per week—is adequate to maintain commercial real estate values at the scale required by the asset class is less clear. The Los Angeles Plaza shoe repair shop is still open. There are still the 2020 shoes. The buildings now house more people than they did two years ago. However, the company that took over entire buildings five days a week has not returned. It might not be returning.