It Could Be Strike 3 For Chicago's Post-Labor Day Return-To-Office Hopes

Yet another Labor Day has come and gone, and while many Chicago companies had renewed visions of a post-holiday return-to-office surge, early numbers suggest it might be déjà vu all over again.

Several companies campaigned around a big return-to-office last summer, but the delta variant had other plans, causing employers to push back return times and reverse back-to-work mandates. As businesses attempted to regroup and push a post-holiday return, a winter plagued by the omicron variant was quick to follow. 

This year, some companies ranging from small family businesses to global finance and technology giants took a more aggressive approach. But with occupancy still hovering around or below pre-holiday numbers, it remains — at best — too early to tell whether change is on the horizon, with some experts saying it will take more than one holiday to turn the tide.

Chicago office occupancy dropped from 42.6% of pre-pandemic levels in the week ending Aug. 31 to 41.8% in the week ending Sept. 7, according to the Sept. 13 Kastle Back to Work Barometer, though that includes the days before and after the long Labor Day weekend.

Avison Young’s Vitality Index, an analytics dashboard that creates daily foot traffic estimates from representative office occupiers in central business districts, reflects a similar drop over roughly the same period.

Average weekday foot traffic was about 11,500 for the week ending Sept. 9, per the index, down 25.5% from the week before, at least partially due to the Monday holiday. The company’s Insights team, which tracks foot traffic around 20 office buildings in the city's downtown core, recorded 17,317 people for the same week, down from 18,782 the week before. 

Foot traffic numbers are down 55.7% from Labor Day week 2019, before the coronavirus hit U.S. shores, although the company said they are generally trending upward.

Damla Gerhart, principal and managing director of Avison Young's Chicago office said the state of Chicago office still needs a couple of months to shake out, though momentum is different this time around. She cited turbulence in the economy and employee leverage backed by a strong labor market as potential make-or-break factors for a strong rebound.

“If you look at data throughout the entire summer, our foot traffic has been 50% higher in Chicago than it was compared to the summer of 2021. You look at Labor Day 2021 compared to 2022, even in the weeks leading up to it, Mondays are higher, even though they’re still low and Tuesday, Wednesday, Thursday has doubled,” Gerhart said.

“If people could actually do a three-day — instead of what’s averaging to be about a two-day workweek — that would be a really significant step for occupancy.”

There are some indications more people are traveling to work. The Chicago Transit Authority enjoyed its three biggest ridership days since April 2020 last month, hitting 880,000 riders on Tuesday, Aug. 23, per the agency. But ridership remains 44% lower than before the pandemic and comes amid persistent long wait times, unreliable service and a severe staffing shortage that had aldermen grilling CTA officials at a city council meeting Wednesday.

While the goal of getting people back to the office in some capacity stands, strategies are largely varied across companies, office experts told Bisnow. Where the pandemic was once top of mind, most employers have already relaxed precautions, with many shifting focus toward upgrading their spaces and changing office culture, including centering meetings around meals and offering perks to incentivize increased attendance.

But most companies aren’t enacting strict attendance mandates, according to a new CBRE survey tracking office usage across 176 companies.

The survey shows a wide gap between manager and employee sentiment persists when it comes to regular attendance in the office and found less aggressive efforts to bolster employee attendance were more popular, with 62% of companies surveyed sending memos to employees encouraging office attendance, but not mandating it.

Julie Whelan, CBRE’s global head of occupier research, said the gap between employer and employee expectations reveals the need for deeper conversations.

“It’s really about the tactics,” said Whelan, who added “many people seem to be missing the point about clearly defining the why and about why it’s important for us to come back to the office together.”

She said organizations that have clearly articulated what coming to the office actually means are the ones attracting employees back. In many cases, she said, it is people themselves who will drive a lasting return. 

"One of the biggest amenities that can be offered is other people," Gerhart agreed, adding "it’s not about having a bunch of humans in the office, it’s about being part of a team that works together. That’s really the driver that companies are going to have to figure out.”

Meanwhile, the downtown office market continues to suffer.

Vacancy rates in the city's central business district are at historic highs, with available sublease space in the office market having increased 96.5% between the first quarter of 2020 and the third quarter of 2022 to 6.4M SF, according to MBRE. About 42% of that is in the city's West Loop where Google recently agreed to purchase the 1.2M SF James R. Thompson Center, spurring hopes of a revival for the beleaguered district.

Elise Goodman, assistant vice president of corporate services-tenant representation at MBRE, said the firm expects this trend to carry through the end of this year and into next.

“This year we saw companies making more permanent decisions with their real estate, mostly to downsize or go remote," Goodman said. "The confidence spike in more permanent decisions and the slowing economy are the two biggest contributors for the continued rise in 2022." 

EWP Architects Managing Principal Brett Polich said landlords will continue to have an especially hard time marketing Class-B, C and D properties, especially in the Loop where several office buildings have come under loan distress since the onset of the pandemic.

Polich said out-of-control construction pricing is also placing pressure on owners of B and C assets who are grappling with costs exceeding the revenue they can get from tenants.

“[It] doesn’t pay to improve their assets, their recourse is to sit or give it back," Polich said, adding that he does not see a holiday deadline or any one significant event being the sole driver in getting people to come back to the office.

“I think we’re seeing major corporations create lines in the sand and you have people who will tag onto that, but I think it’s going to be a more gradual process,” he said.