In a widely anticipated trend, an increasing number of office properties in the U.S. are in distress as remote work has slashed demand for office space in the post-pandemic world.

In 2024, there were 25 million feet of office properties in distress, which is a 39% increase from the average of 18 million square feet over the prior three years, according to a report by CommercialEdge. Distressed properties are those that are on the brink of foreclosure or have already been foreclosed upon or repossessed by a lender.

The average size of distressed properties is also increasing, the Yardi Systems-owned research service reported, climbing 30% year over year to an average of 200,000 square feet in 2024. Nationally, the office vacancy rate was 19.9% in March, up 1.7% from the previous year.

“It has become clear that new attitudes focused on remote work are here for the long haul,” the report stated.

Cities boasting a high concentration of tech companies with remote workers have been hit particularly hard by office vacancies, with Seattle, the San Francisco Bay Area, Denver and Austin, Texas, all posting office vacancy rates above 25% in March.

However, CommercialEdge predicts that a slowdown in office construction starts will give property owners “some much-needed breathing room” over the next few years as the supply-demand imbalance shrinks. There were 11.9 million square feet of construction starts in 2024, according to the report, down from about 25 million square feet in 2023 and 50 million in 2022.

“The office construction slowdown from 2024 appears to only mark the beginning of a prolonged contraction of the development pipeline,” the report noted.