There's a widely accepted narrative about the office market:

• Covid-19 came and companies, often under government demand, closed their offices and had people work from home.
• When things returned more or less to normal, employees didn't want to return, despite executive insistence.
• Because of tight labor markets, employees had more leverage, so office buildings faced significant drops in occupancy.
• Over time, companies realized they had less need for office real estate and started to pare back, leaving many office owners facing big trouble.

An easy four-step journey. And if Brookfield is correct, one that has embraced some big misconceptions. They argue that too much office inventory isn't the issue. Rather, it's too little inventory of the right sort. "There is an excess of dated, functionally obsolete office buildings and an undersupply of offices that satisfy tenants' changing needs," they wrote. Instead of companies not needing office space, "tenant preferences have shifted to buildings with modern amenities and functionality, and the recent rise in interest rates has exposed older office buildings as uneconomical."

That will lead to a "distribution of outcomes for owners, lenders, and local communities," because the uneconomical buildings don't have the financial strength to continue existing as they do.

Brookfield goes on to offer a startling number, that 90% of all office vacancies are in the bottom 30% of buildings, "largely characterized by older offices with limited amenities and reduced functionality." The top 25% of buildings, in comparison, see stable vacancy rates and record-high rents. "We believe this growing divide will only widen as legacy leases expire and tenants look for new space that reflects evolving business culture to engage employees and meet sustainability goals," they write.