A Peak 2026 Office Vacancy Rate Could Cut $250B in Value

For those wondering, as many have, what impact work from home will ultimately have on office properties, Moody’s says that it’s not going away.

They constructed a number of scenarios to project vacancy rates. “For the lowest case of WFH demand reduction, 12% less demand, vacancy peaks at approximately 22.5% in 2026. The larger demand reductions of course produced more dire estimates coming in at 26.2% and 28.4% for the 20% WFH and 25% WFH rates,” they wrote.

The lowest scenarios of 12% and 14% work from home demand reduction less demand were in line with trends Moody’s is already seeing. The highest scenarios of 20% and 25% seem too high.

Instead, “our model indicates that the impact on office demand from work from home will be around 14% on average across a 63-month period, resulting in vacancy rates that peak in early 2026 at approximately 24% nationally. ”That would be up significantly from the 19.8% rate from Q1 of 2024.

“The discourse around the purported benefits of in-office work, emphasized by some CEOs, has been prominent in the media,” they wrote. “Nevertheless, the argument for maintaining or even increasing remote work practices remains compelling for many businesses. If productivity remains stable and costs can be reduced by forgoing physical office spaces, the rationale for mandating in-office attendance diminishes.”

Other organizations see similar data. JLL wrote, “This year’s occupancy planning benchmarking survey shows that over 80% of organizations now have a hybrid program, and almost 50% intend to expand their policy in the next three years. While hybrid programs provide opportunities for employers and employees in terms of flexibility, space variety and optimization, they also bring about challenges. Managing fluctuating weekly occupancy patterns, increasing technology requirements and diminished employee experience in a dynamic workplace creates more complex demands on real estate.”

The perturbations in working from home and office usage will have large impacts on property values according to a separate Moody’s analysis obtained by Bloomberg. The expected increase in vacancy rates will cut revenue for office landlords by between $8 billion and $10 billion.

“That, in turn, could translate into ‘property value destruction’ in the range of a quarter-trillion dollars, Todd Metcalfe, Moody’s associate director of commercial real estate (CRE) forecasting, and Tom LaSalvia, Moody’s head of CRE economics, said in a separate analysis that’s not contained in the report,” Bloomberg wrote.