Hybrid Work Entrenchment Drives Record-High Office Vacancy in Major Cities
As companies have entrenched hybrid work policies since the COVID-19 pandemic, office vacancy rates in major cities have reached record levels. Particularly in financial and technology hubs such as New York and San Francisco, the surge in office real estate vacancies has simultaneously pressured both dividends and stock prices of REITs holding these assets as core holdings.
The Diverging Fates of Three Types of REITs
Real estate REITs experience the impact of remote work differently depending on their asset composition. PLD (closing price of $126.66 on October 22, 2026) is holding up relatively well, concentrating on logistics real estate and benefiting from e-commerce demand. Its annual revenue growth rate is healthy at 10.2%, and while it has declined roughly 13.52% over the past three months, it is maintaining mid-range values within a six-month range of $123.43–$152.14. In contrast, retail-focused SPG (closing price of $212.04 on October 22, 2026) shows even stronger performance with a revenue growth rate of 19.5%. Its one-month change of +3.86% is the only one among the comparable stocks to have risen, and its net profit margin of 66.6% is the highest among the three.
The hardest hit is VNO (closing price of $34.34 on October 22, 2026), which primarily holds office real estate. It has recorded a three-month decline of -13.54%, matching PLD’s fall, and an extremely high P/E ratio of 864.0 suggests that earnings have plummeted. Its annual revenue growth rate is also the lowest among the three at 5.0%, and its net profit margin of 3.6% is the only one in single digits.
Why Office REITs Are Collapsing Now: Four Factors
1. Corporate Decisions to Reduce Office Space: Since the pandemic, major financial and technology firms have been gradually returning leased office space. This is not merely a temporary policy but has become a core strategic initiative for management. Since rent reduction is a major cost item after payroll, companies responding to shareholder pressure no longer wish to maintain large office spaces. As a result, demand for office real estate is structurally declining.
2. Hybrid Work as Infrastructure: Initially, it was expected that office demand would return once normalization occurred after the pandemic. However, with the advancement of remote collaboration tools and employee preference surveys showing high satisfaction with hybrid work, hybrid arrangements are now viewed as a permanent work arrangement rather than a temporary measure. From a corporate perspective, it has become difficult to eliminate flexible work arrangements due to competitive recruitment pressures.
3. Oversupply of Urban Real Estate: Office buildings constructed before the pandemic were built assuming growth by tenant companies. However, as tenant companies choose contraction rather than expansion, the mismatch between supply and demand has intensified. In particular, premium offices in prime locations such as Wall Street and Silicon Valley surroundings are irreplaceable in terms of location, but as vacancies increase, only rent reductions occur while alternative uses are not easily feasible, leading to structural stagnation.
4. Pressure to Reset REIT Dividend Policy: REITs face regulatory requirements to return most profits as dividends. When portfolio value falls and rental income declines, they must either sell assets or increase debt to maintain dividend sustainability. This leads to a vicious cycle. In VNO’s case, earnings have already plummeted sharply, creating severe dividend pressure.
Why Logistics and Retail REITs Remain Attractive
Structural Strength — Logistics: PLD continues to benefit from persistent logistics real estate demand driven by e-commerce growth. Its revenue growth rate of 10.2% and a reasonable P/E ratio of 28.0 indicate that the market still recognizes this business model.
Structural Strength — Retail: SPG’s shopping malls function as spaces for experience and community, unlike online shopping. Its revenue growth rate of 19.5% and net profit margin of 66.6% demonstrate that the asset remains in a profitable state.
Structural Weakness — Office: VNO’s office real estate has seen its revenue model itself shaken. The prolongation of hybrid work has become a fundamental challenge for this business.
Summary
The entrenchment of hybrid work is now a reality, not a hypothesis. Among real estate REITs, logistics- and retail-focused players are adapting by seeking new sources of demand, but office-specialized REITs face a period of portfolio restructuring. For long-term dividend investors, careful selection based on precise understanding of asset composition is essential.
This article is for information only and is not investment advice.