The Office Market Had It Hard in 2023. Next Year Looks Worse.
Office building owners are losing hope that occupancy rates will rebound soon
4 min
Office building owners, hammered by falling demand and high interest rates, struggled in 2023. But they mostly managed to stay afloat.
That is going to be a lot harder to do next year.
Many landlords have been able to extend their loans, often by putting in more capital. But a lot of those extensions are now expiring, and owners are losing hope that occupancy rates will rebound soon.
That means many more office landlords will be compelled to pay off their mortgages, sell their properties at a steep discount or hand their buildings over to their creditors.
“In 2024, it’s game time,” said Scott Rechler, chief executive of RXR Realty, a major owner of office buildings in the New York region. “Owners and lenders are going to have to come to terms as to where values are, where debt needs to be and right-sizing capital structures for these buildings to be successful.”
Office demand shows no sign of returning to pre pandemic levels. While the number of full-time remote employees has dwindled, hybrid workplace policies look here to stay. In the fourth quarter, 62% of U.S. businesses allowed employees to work from home some days of the week, up from 51% in the first quarter, according to Scoop Technologies.
Return-to-office rates also stalled for most of 2023. Kastle Systems, which tracks security-card swipes in 10 major U.S. cities, said that average office attendance is about half of its pre pandemic level. Placer.ai, which tracks mobile phone data, puts it in the 60% to 65% range. But it also said the return rate has topped out.
The office market has shown “some monthly fluctuations but little real change in the overall trajectory,” Placer.ai said in a November report.
The U.S. office vacancy rate stands at a record 13.6%, up from 9.4% at the end of 2019, according to data firm CoStar Group. The firm is forecasting it will rise to 15.7% by the end of 2024 and will peak above 17% by the end of 2026.
That vacancy rate is poised to push higher because nearly half of office leases signed before the pandemic haven’t expired, CoStar said. When they do, many of the businesses will likely take less space than they are currently occupying, whether they are renewing or relocating.
Take the case of Chicago law firm Neal Gerber Eisenberg, which signed one of the city’s largest 2023 office leases earlier this fall. The firm, which has grown steadily throughout the pandemic, adopted a policy that requires employees to work from the office at least eight days a month. Neal Gerber leased 90,000 square feet at its new location, down from the 113,000 square feet it will be giving up.
Beyond the longer-term decline in demand, office landlords are still contending with high interest rates. Landlords that have to refinance debt borrowed when rates were at historic lows will face much higher borrowing costs as high vacancy is putting rents and incomes under pressure.
In recent weeks, inflation has been declining and the Federal Reserve is likely to ease interest rates in 2024. That will soften the blow. But landlords still face a financial squeeze, analysts say.
“If you have a mortgage that’s expiring at 3% or 4%, there’s no way you’re refinancing at 3% or 4%,” said Steve Sakwa, an analyst with Evercore ISI. Even though rates have come down, he added, property owners are still looking at rates that could be double their expiring rates to refinance.
Not all the signals are bleak for the office market in 2024. Demand is still strong for the highest quality and best-located space in many markets from tenants willing to pay high rents to encourage employees to return to offices.
Developers have retreated from new construction in the sector, so there’s little competition from new supply. The 30 million square feet in office construction starts in 2023 was the lowest amount since 2010, according to CoStar.
Cities such as San Francisco, New York and Boston are lowering costs and streamlining the process for converting obsolete office buildings into apartments. While this isn’t expected to result in a big decline in vacancy, the actions might bring more activity to business districts, giving a psychological boost to downtown landlords and businesses.
But the steadily rising number of owners who are defaulting on their mortgages because of falling rent rolls looms over the market. The delinquency rate of bank loans and loans converted into commercial mortgage-backed securities currently is over 6% compared with below 1% before the pandemic hit, according to data firm Trepp.
High delinquencies combined with the dismal office outlook already have convinced some owners to hand properties back to lenders or sell for sharply discounted prices.
In Stamford, Conn., the owner of One Stamford Forum, a 500,000-square-foot building whose tenants include troubled Purdue Pharma, this fall gave the building back to its creditors, according to Trepp. In San Francisco, buyers have purchased office buildings like 60 Spear Street and 350 California Street for fractions of what they were worth before the pandemic.
Trepp is projecting that the office delinquency rate could be over 8% by the second half of next year. As more landlords default, the new owners that replace them—buying in at greatly reduced prices—will likely put more pressure on the market because they’ll be able to charge lower rents and still make a profit.
“What could be catastrophic is if you start seeing corporate profit pressures leading to continued or accelerated pace of office downsizing,” said Stephen Buschbom, Trepp’s research director.
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Sydney Children’s Hospitals Foundation CEO Kristina Keneally says Australia’s culture of large-scale philanthropy is becoming more sophisticated as Gold Dinner raises $75.5 million for children’s health, research and innovation.
3 min
Australia’s wealthiest donors are becoming more strategic, more ambitious and increasingly focused on creating measurable impact, according to Sydney Children’s Hospitals Foundation chief executive Kristina Keneally.
Speaking after the 2026 Gold Dinner, held last week in Sydney, Keneally said Australia was experiencing a significant shift in how major philanthropy is viewed, with large-scale giving increasingly part of conversations about leadership, legacy and social impact.
The annual Gold Dinner, now in its 29th year, brought together some of the country’s most influential business leaders, philanthropists and cultural figures, raising $75.5 million and counting in support of the Sydney Children’s Hospitals Network.
While the event has become one of Australia’s most prestigious fundraising gatherings, Keneally said its significance extends far beyond a single evening.
“Gold Dinner, the flagship event of Sydney Children’s Hospitals Foundation, represents far more than a single evening. It is a powerful demonstration of what a committed community can achieve together over 12 months,” she said.
“The strength of that community, and the trust built over nearly three decades, means people return not just for the event, but for the impact they know it delivers.”
A NEW ERA OF PHILANTHROPY
Large-scale philanthropy has long been a feature of American society, where charitable foundations and major donors often play a prominent role in funding medical research, education and social programs.
Keneally believes Australia is moving in a similar direction.
“Australia is building a stronger culture of large-scale philanthropy, but it is still evolving compared to the United States, where giving at scale is more deeply embedded and widely recognised,” she said.
She said the country’s philanthropic landscape was becoming more sophisticated as successful business leaders increasingly sought opportunities to create meaningful change through their giving.
“In Australia, while generosity has always been strong, large-scale giving has historically been less visible, but that is changing rapidly as more leaders embrace philanthropy as a powerful way to drive meaningful outcomes.”
According to Keneally, events such as the Gold Dinner are helping reshape public perceptions of philanthropy by demonstrating the tangible outcomes that major donations can achieve.
“Gold Dinner is helping to reshape how philanthropy is perceived in Australia, making it more visible, more aspirational and more connected to real-world outcomes,” she said.
WHERE THE MONEY GOES
The funds raised through Gold Dinner support clinical care, research and innovation across the Sydney Children’s Hospitals Network.
Over the past 12 months, more than $75.5 million has been raised to help fund advanced medical equipment, innovative care models and world-leading medical research. Areas of focus include precision medicine and early diagnosis, where emerging technologies are already changing how childhood illnesses are detected and treated.
Keneally said the impact is felt directly by children and families facing some of the most difficult moments of their lives.
“For children and families, this translates into very real and immediate impact. It means faster diagnoses, earlier access to life-saving treatments, and care that is more personalised and effective,” she said.
“It also ensures hospitals are equipped not just to respond to illness, but to reimagine what care can look like, giving children the best possible chance not only to survive, but to live full, healthy lives.”
BUSINESS LEADERS BACKING CHANGE
One of the defining characteristics of Gold Dinner is the calibre of its supporters.
The event has evolved into a meeting point for influential leaders from business, culture and philanthropy, many of whom see charitable giving as an extension of their professional and personal legacy.
“It speaks to a community that is not only generous, but increasingly ambitious in how it gives, combining influence, expertise and purpose to achieve outcomes at scale,” Keneally said.
Among the major supporters of this year’s event were Presenting Partner, John-Paul Nassif Foundation; Major Partners, ABC Bullion, Shaw and Partners Financial Services and One Circular Quay by Lendlease; and Premier Partner, Range Rover, whose ongoing support reflects a shared philosophy of legacy and long-term impact.
The evening also featured performances, premium hospitality experiences and fundraising initiatives designed to encourage further support for children’s health services and research.
LOOKING BEYOND NEW HOSPITALS
With major new children’s hospital developments at Randwick and Westmead progressing, Keneally said the focus is increasingly turning towards what comes next.
“The long-term vision is to ensure every child has access to world-leading healthcare, care that continues to evolve through innovation, research and global collaboration,” she said.
The foundation’s future priorities include accelerating medical discovery, expanding access to cutting-edge treatments and helping position New South Wales as a global leader in children’s health.
Keneally said the Gold Dinner remains central to achieving those ambitions because it does more than raise money.
“Gold Dinner is critical to making that vision possible. It not only provides significant funding, but also unites a powerful network of supporters who are driving the future of philanthropy in Australia,” she said.
As Australia’s culture of philanthropy continues to mature, Keneally believes that the network will play an increasingly important role in shaping the future of healthcare for generations to come.
“The result is a community that is helping to shape the future of paediatric care, not just for today’s patients, but for generations to come.”
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