January 1, 2022 / VOLUME NO. 190

The New Year’s Biggest Question in CRE

A little more than five quarters ago, I wrote about the looming commercial real estate credit nightmare for the fourth quarter 2020 issue of Bank Director magazine.

By that time, I hadn’t stepped into Bank Director’s offices for six months; it wasn’t clear when, and under what circumstances, I would return. Thankfully, the commercial real estate sector did not collapse. Consumers changed the way they traveled, shopped and dined out. But they also changed the way they work — to the detriment of office buildings. 

The office sector could face “the most significant challenges” and greatest uncertainty in the year ahead, according to an article published in the Federal Deposit Insurance Corp.’s Quarterly Banking Profile on Dec. 16, 2021. The analysts found that the pandemic reduced demand for office space nationwide for the first time in a decade — a trend that could persist long-term. The vacancy rate for U.S. office space increased from 9.7% at the end of 2019 to 12.3% in the third quarter 2021, which the FDIC said was “an eight-year high.” 

A third of workers had returned to their offices by October 2021, the FDIC wrote. However, the spread of new variants at the end of the year was reportedly complicating efforts of firms like Ford Motor Co., Alphabet’s Google, Citigroup and Apple to recall more workers. Further, employers are experimenting with hybrid work schedules that mix on-site and remote work. Companies may decide that a rotating group of employees requires less space. 

Since I wrote that article in 2020, Bank Director has implemented a hybrid schedule for its Nashville-based employees. Teams rotate into the office on their assigned workdays. There are more collaborative workspaces and fewer assigned desks. And while I started writing this essay from my desk at home, I finished it at the office. The company is embracing a hybrid workforce and flexible scheduling — and plans to keep the office for the time being.

With more employers choosing Bank Director’s route or keeping workers remote indefinitely, banks may need to update their outlook for office space. 2022 won’t look exactly like 2021 and certainly not like 2020. But it has quite a few question marks. 

• Kiah Lau Haslett, managing editor of Bank Director

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