Why Return-to-Office Mandates are Growing
How Economic Pressures, Not Productivity, Are Driving the Push Back to Office Towers
The COVID-19 pandemic in 2020 forced a global shift in how we work. Amid the disruption, one silver lining emerged: a technological leap that enabled companies to embrace remote and hybrid workforces. This shift brought clear benefits for both employers and employees—lower real estate costs for businesses, and improved morale and flexibility for workers.
Despite early skepticism, productivity did not decline (let’s be real). Many organizations have continued operating this way since the pandemic, and the system hasn’t collapsed—aside from businesses that were forced to shut down due to prolonged lockdowns. Nevertheless, I’ll set the productivity debate aside for now, since the evidence can be interpreted in either direction. So why, then, are return-to-office mandates becoming more common?
Productivity outcomes vary significantly by industry and job type. Sectors such as professional services and technology—where tasks are highly teleworkable—have seen broader adoption of remote/hybrid work and often sustained or even enhanced productivity. In contrast, roles that depend on physical presence or spontaneous collaboration, such as creative fields or mentorship-intensive positions, have encountered more friction. Importantly, productivity has not universally declined since remote and hybrid work became widespread. Where deficiencies do occur, they are often amplified by poor leadership, unclear policies, or a lack of trust within organizations—rather than by the work model itself.
In a world defined by technological advancement, why is remote and hybrid work suddenly being treated as unacceptable? Increasingly, companies—particularly bureaucratic institutions—are enforcing rigid return-to-office mandates. And not just hybrid arrangements, but full five-day schedules that harken back to outdated workplace norms. This push feels misaligned with reality, especially for employees who know firsthand that their productivity doesn’t hinge on whether they’re seated at a desk at home or in a corporate office.
Just imagine what happens to productivity when morale decreases, top talent walks away, and leaders cling to outdated playbooks1. I’ve made my case in the past for work-from-home initiatives in Take Four Edition of Random Investing Notes.
But the real issue at stake isn’t productivity—it’s economics.
Demand for office space has plummeted. Rising interest rates have made refinancing nearly impossible and stalled conversion projects. Meanwhile, an oversupply of commercial real estate is putting pressure on all sides. As property values decline, the ripple effects are felt by banks, pension funds, and municipal budgets—each one compounding the erosion of value. Return-to-office mandates, in many cases, are less about collaboration and more about salvaging a collapsing asset class.
U.S. Office Vacancy Concerns
National office vacancy rate reached 19.4% in June, up 130 basis points year-over-year (YoY).
Office construction hit a multi-year low, with 41 million sq. ft. underway nationally.
Roughly 33% of office loans (≈14,000 properties) will mature by 2027, totaling $290 billion.
Loan extensions are becoming harder to secure; defaults and delinquencies are rising.
CMBS delinquency rate for office properties hit 11.08% in June.
Office-using job growth was stagnant at 0.1% YoY, compounding low physical occupancy.
Vacancy remaining elevated in alignment with stagnant physical occupancy numbers, sluggish office-using job growth, interest rates likely to remain high, and overall economic uncertainty are compounding the stress affecting office properties that were already struggling2.
Plan Going Forward
For starters, we should expect a rise in discounted property sales as office valuations continue to decline due to waning demand. This is the underlying crisis we’re pointing to.
The more forward-thinking solution would be to repurpose underutilized office buildings into residential units—where demand is significantly higher—in an effort to ease the burden of homeownership costs. But such a transformation would require robust public policy support, which remains unlikely. Instead, the prevailing policy response has been to mandate return-to-office requirements. These mandates serve as a face-saving measure to prop up the value of commercial assets that are otherwise deteriorating.
However, organizations enforcing full return-to-office transitions will likely face mounting logistical challenges and talent retention issues. In contrast, those that embrace the evolving nature of work—by offering flexibility and aligning with modern workforce expectations—will be better positioned to attract top talent and strengthen their competitive edge in a rapidly changing global economy.
Canada Office Vacancy Concerns
From Canada’s perspective, the increased enforcement of return-to-office mandates—combined with a sharp decline in new office construction—has led to a modest improvement in vacancy rates. The national availability rate fell to 16.6%, down 40 basis points from Q1.
However, the mechanisms driving this shift are far from encouraging. These gains are largely the result of policy pressure and supply constraints, not organic demand. When we zoom in on the Canadian office sector, it becomes clear: while occupancy rates are inching upward through forced intervention, property valuations remain stagnant. The disconnect between space utilization and asset value underscores deeper structural challenges in the market.
Valuation Decline:
Fell 0.54% quarter-over-quarter (QoQ)
Dropped 3.27% year-over-year (YoY)
Largest YoY declines:
Ottawa: -9.9%
Edmonton: -5.8%
Calgary: -4.3%
Net Absorption: Turned negative in most markets, except Halifax and Southwestern Ontario3, meaning more space was vacated than leased.
Bifurcation in Asset Quality:
AA-grade assets are holding value better and seeing rent growth
A-, B, and C-grade properties continue to drag down the overall market
Construction Pipeline:
At a multi-year low—down 82% from its 2020 peak—with only 21 buildings (3.9M sq. ft.) under construction.
35% of this upcoming space remains unleased.
Six new buildings added 875K sq. ft. nationally; nearly half remained unleased, showing cautious tenant demand.
As a result, we’re witnessing a growing wave of return-to-office mandates. Yet, when you factor in rising unemployment and the downturn in public administration and support services, the pressures on office demand—both direct and indirect—continue to mount.
Mandates - The Only Hope
Why do mandates occur?
Mandates don’t always arise because something is broken. More often, they emerge when something is working too well—just not in the direction leadership or institutions want. Mandates are tools of enforcement, used to compel compliance with policies or behaviors deemed necessary by those in power, regardless of whether the current system is functioning effectively.
Take remote and hybrid work, for example. It’s been a success story for many employees: productivity held steady or improved, morale rose, and companies cut real estate costs. But from a market and institutional standpoint, this success has triggered unintended consequences.
Office spaces are now underutilized, threatening the viability of long-term leases and eroding asset values. Rising vacancy rates and falling valuations increase the risk of loan defaults and delinquencies. As property values decline, refinancing becomes more difficult—forcing borrowers to accept higher rates or absorb losses. This instability doesn’t just affect landlords; it ripples through banks and the broader economy.
Municipal budgets are also at risk. Cities depend heavily on property tax revenue, which shrinks as office vacancies rise. Moreover, downtown economies suffer when fewer commuters spend money on transit, food, and retail.
Pension funds, which often hold significant commercial real estate debt, face their own reckoning. A major write-down in office assets directly impacts the value of retirement portfolios, compounding long-term financial strain.
Reversion to old norms can happen through incentives, cultural shifts, or voluntary adaptation. But when those fail, mandates become the blunt instrument to restore a previous equilibrium—whether it’s about physical presence, managerial control, or cultural cohesion. It’s like trying to put toothpaste back in the tube: persuasion won’t cut it, so force becomes the fallback.
The rationale behind mandates varies. Sometimes they respond to tangible issues like public health or economic stability. Other times, they reflect ideological or political motives. In this case, it’s the latter.
And it’s not subtle. Public remarks increasingly frame remote/hybrid work as harmful to downtown businesses and local economies. The narrative isn’t about productivity—it’s about preserving financial sustainability by nudging workers back into office towers, not because it’s necessary, but because the system depends on it. However, we should all know how this ends.
Consider joining DiviStock Chronicles’ Referral Program for more neat rewards!Please refer to the details of the referral program.
Yep. The same folks that run the thing also own the real estate (esp a certain demographic - would love to see you unpack that one). Doesn't surprise me to see folks over the age of 75 and worth more than a billion spending money grabbing up these assets.
Really appreciate how you unpacked the deeper economic forces behind RTO mandates. The connection to commercial real estate, municipal budgets, and pension funds often gets overlooked in the ‘productivity debate.’ It’s eye-opening to see how much of this push is less about collaboration and more about propping up a fragile asset class. Sharp analysis.