January 2025

First, my apologies. Its been a minute since I have written in this blog. I had a friend in law school from Alabama and he used to say something had been a “month of Sundays.” Being a yankee, I’d never heard that expression before. But it seems appropriate here. Its been a month of Sundays since I wrote this blog.

But I’m back. And with some interesting news and an interesting topic to talk about. I’m sure most of us know that President Trump has made a flurry of executive since he took office. Well one of them is interesting in our commercial real estate world. President Trump ordered all federal workers back to the office five days per week. We have talked a lot in this blog about the decline of office and rise of vacancies, etc. Well with the federal government going back to the office and some companies doing the same – could we see a shift in the future of office? Let’s talk about it.

Trump’s “Return to Work” Order: A Symbolic Shift

The COVID-19 pandemic obviously marked a seismic shift in the world of work. As businesses scrambled to adjust to remote work, it quickly became clear that employees could remain productive outside of traditional office settings. However, not everyone agrees and the backlash against remote work has gained momentum recently. We see this with the new administration as President Trump signed an executive order requiring federal employees return to the office full time.

Trump’s return-to-office obviously only applies to federal employees. But its important for a couple of reasons. First, it represents a return to the pre-pandemic norm, where in-person work was the expected standard for the majority of industries. And could help shift the default to be in office – as opposed to at home and hybrid. Second, the federal government has a lot of employees throughout the United States that take up a lot of office space. This could potentially help revive the office market.

Private Companies Also Joining the Trend

While Trump’s order is a high-profile example, many private companies have been reevaluating remote work policies as they navigate the post-pandemic landscape. In fact, some of the biggest names in business, such as Goldman Sachs, J.P. Morgan, and even tech giants like Apple, have instituted return-to-office mandates in various capacities. For many businesses, this is more than just an attempt to return to normal; it’s an acknowledgment of the tangible and intangible benefits of in-person work.

In industries like finance, consulting, and law, the office has long been a hub for collaboration, networking, and career growth. These industries have led the charge in bringing employees back to the office, with some even rolling out hybrid work models. The hybrid model—which offers a mix of in-office and remote work—has proven popular among employees, providing them with a balance of flexibility while still encouraging physical presence when necessary.

Tech companies, on the other hand, have been a little slower to return to traditional office setups. Companies like Meta and Twitter initially embraced flexible work policies, but as competition for top talent has heated up and productivity questions loom, there is mounting pressure to reconsider remote-first policies. What’s becoming clear is that many businesses are starting to recognize that while remote work offers flexibility, it also poses significant challenges in maintaining company culture, fostering mentorship, and encouraging spontaneous innovation that often happens in a physical office environment.

How a Shift Back to the Office Could Impact the Texas Office Market

Texas is experiencing a unique intersection of trends that could make a return to office orders particularly impactful on its commercial real estate market. The Lone Star State has historically been a hub of economic growth, with major cities like Dallas, Austin, and Houston boasting some of the most lucrative and expansive office markets in the U.S. However, like the rest of the nation, Texas is grappling with rising office vacancies due to a mix of remote work trends, downsizing, and shifts in work habits.

Before we can predict how a return-to-office movement might impact the Texas office market, we need to understand the current landscape. According to recent reports from commercial real estate firms, office vacancy rates in major Texas cities remain stubbornly high, especially in the downtown areas of cities like Austin, Houston, and Dallas. As of late 2024, vacancy rates in these cities hovered between 24-28% on average, with some submarkets experiencing even higher vacancy levels.

Austin, for example, which had seen explosive growth in the tech sector during the early 2020s, is now facing significant office oversupply. The city’s rapid expansion of office space, coupled with a rise in remote work and hybrid policies, has resulted in higher vacancy rates. Similarly, Houston’s office market has struggled to recover fully, with much of the leasing activity in the city’s downtown core concentrated on subleases and smaller tenant footprints.

Dallas, while maintaining a somewhat stronger market, is not immune to the broader trends. Tech giants and financial firms have reduced their office footprints, signaling a shift in the type of office space demand. And in each of these cities, the growing presence of coworking spaces and remote work policies has altered the demand for traditional office space.

The Impact of Return-to-Work Orders on Texas Office Vacancies

A shift towards return-to-office mandates, whether driven by individual companies or more broadly across industries, could have a noticeable impact on Texas’ office vacancy rates. For starters, it would likely increase demand for office space in areas that are perceived as attractive or beneficial for in-person work. Companies that opt for hybrid models or full return-to-office mandates may need to rethink their office layouts, opting for flexible and collaborative spaces that accommodate both in-person work and hybrid teams.

If more corporations follow the lead of Trump and other major businesses, leasing activity in Texas office buildings could pick up significantly. This would be especially impactful in large metropolitan areas like Austin and Houston, where the market has been struggling with a high supply of office space and low demand. A renewed push for in-person work could help absorb some of this excess inventory, ultimately driving down vacancy rates and stabilizing the market.

However, it’s not just the high vacancy rates in downtown areas that could be impacted. There could be a shift in how businesses utilize office space overall. With companies rethinking their office strategies, we may see more demand for flexible, hybrid office solutions, such as coworking spaces, shared office environments, and satellite offices in suburban areas. This could change the traditional office market dynamics, creating new opportunities for landlords and developers in emerging submarkets.

While it’s too early to predict this will be the full revival of the office markets, it’s clear that a broader shift toward returning to the office could help revitalize the Texas office market.