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Data: JLL Research; Chart: Will Chase/Axios

The demise of the office was predicted in the early days of pandemic lockdowns. But the prospect of downtown business districts turning into modern ghost towns is now looking much less likely.

Why it matters: The U.S. office building market is over $2 trillion in size, and vacancies have ticked up, while rents have gone down, over the last year. But many companies are now planning their returns to the office, likely with a hybrid model that allows for more social distancing — a trend that will help offset declining demand for office space.

  • “The office sector overall is in the midst of an evolution. Remote work models will likely have a negative impact on office demand,” Katie Vaz, managing director at real estate asset manager Clarion Partners, tells Axios.

Yes, but: While demand for the office space we once knew may be shrinking, one thing that’s likely to offset the trend is a need for a higher average amount of space allocated to each person, Vaz says.

  • The technical term is “office de-densification.”

The backstory: Employees have seen their personal in-office space shrink dramatically for decades.

  • In 1990, offices offered an average of 325 square feet per employee. That declined to 196 feet by 2020, according to commercial real estate company, JLL.

That course is now expected to reverse.

  • For health and safety reasons, employers are adjusting the office set-up for a smaller, hybrid workforce. That provides an opportunity — or even a requirement — for re-imagining technology and space designs to fit new collaboration and communication patterns.
  • The momentum toward de-densification actually began before COVID, but has been accelerated by the pandemic, says Will Silverman, managing director at real estate investment bank Eastdil Secured.

Be smart: Most office leases are anywhere from five to 20 years long. The density and design changes will play out over many years as more leases roll off.

  • Very few of Clarion's tenants have sought to get out of their leases altogether, Vaz says. Many that have come up for renewal, or are about to, have instead inked short-term extensions to buy time to figure out what will work best.

The big picture: Despite the initial panic, the national office vacancy rate rose somewhat mildly, by less than 1%, between the end of 2019 and the end of 2020, according to Moody’s Analytics.

  • In the massive New York City market, effective office rents fell by 2.4% in 2020, much less severe than Moody’s earlier expectation for an 8.6% decline.
  • This year, Moody's expects effective rents nationally to fall by 7.5%. That's significant, but not as bad as the 8.9% decline in 2009 at the height of the financial crisis.

Of note: In an August 2020 KPMG survey, 69% of CEOs said they planned on downsizing their office space. In March 2021, just 17% said they’ll be downsizing.

  • Tech companies led the remote work revolution at the start of the pandemic, but more recently, companies like Facebook and Amazon have made investments in physical offices.

The bottom line: Many people want to return to the office. But the notion of what the office looks like – and what we do there – is still in flux.

Go deeper

Aug 23, 2021 - Axios Denver

Delta threatens Denver's rebound

Illustration: Brendan Lynch/Axios

The surge of new coronavirus cases and concerns about Delta's transmissibility are threatening to upend the return to "normalcy" we've all been looking forward to.

State of play: Companies and institutions are reevaluating return-to-office plans and COVID-prevention policies as the bounce back many industry leaders anticipated this summer appears to have fallen short.

By the numbers: Vacancies in Denver’s office buildings still remain up by 4% compared with the same period in 2019, according to data provided to Axios by Colliers International.

  • Convention bookings at the Colorado Convention Center have been reduced by nearly 70% as of Aug. 13, due in large part to the pandemic. Although the city hasn’t seen a major wave of convention cancelations because of the latest surge, at least 45 conventions have been nixed this year, according to Visit Denver, the city’s tourism arm.
  • OpenTable, a popular restaurant reservation system, reports that the number of diners at Colorado restaurants remained down by an average of 6% through Aug. 9, compared to the same point in 2019.

Already in the Denver metro area and elsewhere in Colorado, we're having 2020 deja vu as some big entertainers rethink their fall concerts because of the surge.

  • The Bohemian Light Music Festival in Fort Collins scheduled earlier this month was canceled due to "rapid spread of the Delta variant," the Denver Post reports.
  • Stevie Nicks also backed out of her upcoming performances, including at the Jazz Aspen Festival in September, due to coronavirus concerns, per the AP.

The big picture: Throughout the summer, vaccinations have slowed and we have yet to reach "herd immunity."

  • There isn't a mask mandate in Colorado or Denver anymore, and the highly contagious Delta variant is fueling a spike in cases and hospitalizations among unvaccinated individuals.

Reality check: We're still in a much better place than we were last year.

Yes, but: Children under 12 remain vulnerable. Back-to-school season, combined with more of us heading indoors, could lead to another bump.

The bottom line: We haven't fully recovered since the pandemic first hit, and the threat of another wave could have major implications for fall and across multiple industries.

Editor's note: This story has been corrected to note that vacancies in Denver office buildings remain up by 4% (not down).

Updated 55 mins ago - World

German election: Exit polls show close race to succeed Angela Merkel

SPD leader Olaf Scholz. Photo: Alex Kraus/Bloomberg via Getty Images

BERLIN — Exit polls from Sunday's German elections showed the center-left Social Democrats (SPD) slightly ahead of the center-right Christian Democrats (CDU) in a tight election race to succeed Angela Merkel.

State of play: Official results were still rolling in, but a partial count showed the SPD ahead with 26% of the vote and the CDU on just over 24%.

Updated 1 hour ago - Politics & Policy

Liz Cheney: Americans deserve better than choice of Biden or Trump

Rep. Liz Cheney talks with Lesley Stahl on CBS' "60 Minutes." Photo: CBS News

Rep. Liz Cheney (R-Wyo.) told CBS' "60 Minutes" in an interview broadcast Sunday that Americans "deserve better than having to choose between" President Biden's "disastrous" policies and former President Trump, "who violated his oath of office."

Why it matters: Cheney made the remarks after CBS' Lesley Stahl put it to her in the interview that Republicans feel that her joining the House select committee in charge of investigating the Jan. 6 U.S. Capitol riot helps "keep the focus on Trump instead of on the shortcomings of the Biden administration."