No New Office, No RTO?

It’s a simple observation: If a firm wants more workers back in the office, they’d better have space for them. But the latest office-construction and office-leasing numbers suggest more firms may be backing away from full RTO plans.

According to the latest figures, office-building construction spending has fallen by more than one-third in just three years, from more than $70 billion annually in 2022 to $44 billion in 2025. Meanwhile, office leasing in the US fell by 10% last year. Real-estate experts say that while many factors can affect construction, such as interest rates, the data suggests corporate RTO plans may be slowing. “Occupancy has improved significantly, but has not expanded to the point where it would warrant building in many places,” says Anthony LoPinto, global sector leader of Korn Ferry’s Real Estate practice.

The office-building boom that began prior to the COVID-19 pandemic wasn’t significantly affected by it. Between 2020 and 2023, annual spending on office construction was at least $60 billion, according to the U.S. Census Bureau. It’s the behavior of office workers since the pandemic subsided that has given real-estate developers pause.

As the COVID-19 vaccine became readily available in 2021, office occupancy in major US cities floated at between 30% and 45% of pre-pandemic levels. Five years later, it’s risen, but only to 56% of the pre-pandemic rate, according to Kastle Systems, which tracks key swipes at office buildings.

That stat might frustrate the leaders who firmly believe their organizations are better off when most people are working in the same place at the same time. Some of those leaders succeeded in bringing their workers back to the office full-time, but many did not. Some stopped pushing for full-time office work, fearing it might alienate both existing and potential employees. “There’s a war for the soul of corporate America when it comes to this,” says JP Sniffen, practice leader for Korn Ferry’s Center for Military Center of Expertise.

Other bosses found that a hybrid schedule, if well designed and executed, can improve an organization’s productivity and reduce its need for office space. Kate Shattuck, a Korn Ferry managing partner, has one client whose senior team members gather together four times a year for five straight days of intense work, then spend the rest of the quarter working remotely. “Some organizations are getting this right,” she says.

Real-estate developers are willing to spend on one category only: high-end buildings with luxurious amenities in prime locations where people want to work. LoPinto says places like Park Avenue in New York City are seeing plenty of building and commanding massive premiums on rents. “If you’re in an A+ location, the demand is there,” he says. Kastle’s data backs that idea: Average occupancy at these so-called A+ buildings is 79%, more than 20 percentage points higher than the average. The issue, of course, is that there are only so many prime locations. Across 57 markets in the US, only 830 buildings—2% of the total—are considered “prime locations,” according to a 2024 report by real-estate firm CBRE.

Many developers won’t commit to new construction outside prime areas unless workers return to the office and occupancy improves, says Nick Prewitt, a senior associate in Korn Ferry’s Real Estate practice. “The suburban-office outlook remains bleak,” he notes. Instead of building new office buildings, many developers are trying to retrofit older ones in non-prime locations to make them more attractive. Others, having given up entirely on the idea of attracting office dwellers, are converting underused buildings into condominiums, apartments, or, ironically, data centers.

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