More companies are abandoning the looser work policies they adopted during the early years of the pandemic, as leaders become increasingly committed to fostering an office culture.

Amazon called company staff back to the office five days a week last month. The company is now looking for a large expansion space in Manhattan, according to brokers.

Dell Technologies said it requires its global sales team to work full-time from company offices. 3M’s new chief executive said last week that the company expected more participation from senior employees at the company’s headquarters and other large sites.

A third of all companies required employees to be in the office five days a week in the third quarter, up from 31% in the second quarter, according to Flex Index, which tracks workplace strategies.

This ended a streak over the previous five quarters in which this rate had steadily declined. One reason for the decline is that low unemployment gave employees leverage when they insisted on working more remotely. Today, the number of employees is no longer growing as much, which shifts the balance of power towards managers.

No one predicts workplaces will return to pre-pandemic patterns, but most believe the worst is probably over for the office sector.

“We felt like we were on a path where we were going to see a decline continue quarter after quarter,” said Rob Sadow, chief executive officer of Flex Index. “All of a sudden in the third quarter we saw a change in direction.”

These signs of stabilization hardly signal the end of the turbulence in the office market.

The vacancy rate stabilizes at a near-record high of 13.8%, compared to 9.4% in the fourth quarter of 2019. Since the second quarter of 2020, U.S. office tenants have vacated nearly 209 million square feet squares of space, the highest amount ever recorded. for a period of four and a half years, according to data company CoStar Group.

Much of the currently empty office space is now considered obsolete. It may never be filled.

Defaults and other missed payments also continue to rise. In September, the default rate for office loans converted to securities increased to 8.36%, the highest rate since November 2013, according to data firm Trepp.

Banks, which reported third-quarter results, say problems with troubled office loans far overshadow difficulties faced by other types of commercial real estate, which are struggling primarily because of interest rates students.

“The real problem is the office,” Chris Gorman, chief executive of KeyCorp, said in an interview, referring to the commercial real estate industry in general.

Additionally, according to CoStar, leases for approximately 40% of office space rented at the start of the pandemic have not yet expired. When they do, many of these tenants are expected to lose space.

“The phase-down is not over,” said Phil Mobley, CoStar’s national director of desktop analytics.

Yet after eight straight quarters of office space contraction, the amount of occupied office space remained essentially flat during the second and third quarters, CoStar said.

In New York, job vacancies are declining in part due to the expansion of financial services companies such as Citadel, Ares Management and Blue Owl Capital. Artificial intelligence companies, which have been one of the few bright spots in San Francisco’s hard-hit office market, have begun leasing space in other markets, such as Denver, Atlanta and Seattle.

“The trend over the last four years has been: I do the bare minimum,” said Elizabeth Hart, Newmark Group’s president of leasing for North America. Today, she says, companies are looking beyond their headquarters.

“Over the last six months, you’ve seen people start in one geographic area expand to others,” she said.

Companies that offer spaces with gyms, outdoor terraces and gourmet restaurants in their properties say these amenities attract workers to their offices.

HSBC Bank, which in 2022 leased about 270,000 square feet for its U.S. headquarters in a new Manhattan development called The Spiral, added another 35,000 square feet this year, in part because employee attendance increased from less than 40% to 80% in its old space.

“It was clear we needed more space almost immediately,” a spokeswoman said.

Investors are noticing a change in market psychology. In October, developer Tishman Speyer completed a $3.5 billion refinancing of a revitalized Rockefeller Center, the largest issuance ever for a single office asset. That paves the way for others to own other well-leased office buildings, analysts say.

“Demand in the market (from bond buyers) was not only increasing, it was not being met,” said Rob Speyer, the company’s chief executive. That interest persuaded him to refinance in August, even though the debt on the building didn’t come due until August. middle of next year.

Although the sales volume of office buildings remains modest, investor interest in distressed office buildings has increased after prices fell. Real estate firm Eastdil Secured has completed 18 office sales worth $2.6 billion this year, led by lenders divesting assets, according to sources familiar with the matter. That compares to three such sales this time last year, the sources said.

“Things look better than ever from a valuation standpoint for the office sector,” said Dylan Burzinski of real estate analytics firm Green Street.

Gina Heeb contributed to this article.

Write to Peter Grant at [email protected]