The U.S. office real estate market faces a worsening imbalance as supply continues to outpace demand. Boston Properties CEO Owen Thomas warned that the sector remains heavily overbuilt, with many buildings struggling to attract tenants nearly five years after the pandemic reshaped work culture. His outlook signals that the office crisis may persist longer than many investors expected.
Companies have not returned to pre-pandemic office usage. Hybrid work remains the dominant model across most industries. Tenants now demand modern, energy-efficient spaces that offer amenities employees cannot access at home. As a result, premium offices see strong interest, while older buildings sit empty. This shift has created a widening gap between high-quality office towers and outdated properties that require expensive upgrades.
Thomas noted that many older offices lack the features required to bring employees back. Employers want collaborative layouts, sustainable designs, and advanced ventilation systems. Buildings that cannot deliver those features fall behind quickly. Renovating them requires significant investment, but many landlords lack the financial flexibility to modernize their properties.
The rise in interest rates over the past two years has added even more pressure. Higher borrowing costs make refinancing older buildings difficult. Several landlords face reduced property values, shrinking rental income, and rising debt-service costs. Analysts warn that some owners may eventually hand properties back to lenders if occupancy levels do not improve.
Despite these challenges, top-tier office buildings continue to perform well. Tenants that want employees on-site are placing a premium on quality. Thomas said demand for modern, centrally located spaces has remained steady. Boston Properties continues to invest in such buildings, focusing on markets where high-growth companies still value in-person work.
However, the broader market shows little sign of recovery. Office vacancy rates remain at record highs across major cities. Large companies are downsizing their office footprints as they adopt long-term hybrid policies. Many firms view physical space as a cost center rather than a strategic asset. This shift represents a major structural change for the sector.
New office construction has slowed, but it has not stopped completely. Projects that started years ago are still being completed, adding more space at a time when demand is flat. Thomas believes this new supply will worsen the imbalance temporarily before the market reaches stability. He expects landlords to compete aggressively for tenants over the next few years.
Some cities have begun exploring office-to-residential conversions to reduce vacancy. But Thomas cautioned that this solution is expensive, complex, and often limited by zoning rules or building layouts. Only a small portion of empty office buildings can be converted efficiently, meaning most will continue to struggle.
Landlords hope economic growth may eventually boost office demand. But Thomas emphasized that companies will not return to pre-pandemic patterns. The sector must adapt to new expectations around flexibility and workplace design. Investors may need to reprioritize long-term planning to survive the transition.
The U.S. office market now faces a protracted adjustment period. Modern buildings will continue to outperform, while aging properties risk further decline. As hybrid work solidifies, the divide between winners and losers in commercial real estate will only grow wider.
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