The bosses call the workers back to the office. That’s good news for owners.

More companies are retreating from the more lax workplace policies they adopted in the early years of the pandemic as executives increasingly commit to fostering an office culture.

Last month Amazon called corporate staff back to the office five days a week. The company is now looking for a large block of expansion space in Manhattan, according to brokers.

Dell Technologies said it is requiring its global sales team to work full-time from the company’s offices. 3M’s new chief executive said last week that the company expects a greater presence from senior employees at the company’s headquarters and other large locations.

A third of all companies required workers to be at the desk five days a week in the third quarter, up from 31 percent in the second quarter, according to the Flex Index, which tracks workplace strategies.

That ended a streak over the past five quarters when that rate has fallen steadily. One reason for this decline was that low unemployment gave employees leverage when pushing for more remote work. Now, the white-collar workforce is not growing as much, shifting the balance of power back to managers.

No one sees jobs returning to pre-pandemic patterns, but most believe the worst is probably over for the office sector.

“We looked like we were on a path where we were going to see a decline that continued quarter after quarter,” said Rob Sadow, chief executive of Flex Index. “All of a sudden in the third quarter we saw a change in direction.”

These signs of stabilization hardly signal an end to the turmoil in the office market.

The vacancy rate stabilizes at a near-record high of 13.8%, up from 9.4% in the fourth quarter of 2019. As of the second quarter of 2020, US office tenants have vacated nearly 209 million square meters of space, the largest amount ever. for a period of four and a half years, according to data firm CoStar Group.

Much of today’s empty office space is now considered obsolete. It may never be filled.

Deficiencies and other missed payments continue to rise. In September, the default rate on securitized office loans rose to 8.36 percent, the highest rate since November 2013, according to data firm Trepp.

The banks, which reported third-quarter earnings, say problems with distressed office loans far eclipse difficulties with other types of commercial property that are struggling mainly because of high interest rates.

“The real problem is the office,” KeyCorp Chief Executive Chris Gorman said in an interview, referring to the commercial real estate industry in general.

In addition, leases for about 40 percent of the office space leased at the start of the pandemic have not yet matured, according to CoStar. When they do, many of those tenants are expected to vacate the space.

“The resolution is not over,” said Phil Mobley, CoStar’s national director of desk analytics.

However, after eight straight quarters of office space contraction, the amount of occupied office space remained essentially flat in the second and third quarters, CoStar said.

In New York, job vacancies are shrinking due to the expansion of financial services firms such as Citadel, Ares Management and Blue Owl Capital. AI firms, which have been one of the few bright spots in San Francisco’s battered office market, have begun leasing space in other markets, including Denver, Atlanta and Seattle.

“The trend over the last four years has been: I’m doing the bare minimum,” said Elizabeth Hart, Newmark Group president of leasing for North America. Now, she says, companies are looking beyond their home base.

“In the last six months, you see people starting in one geography expanding into others,” she said.

Companies that offer spaces with gyms, outdoor patios and fine-dining restaurants on their properties say these amenities lure workers back to their offices.

HSBC Bank, which in 2022 leased about 270,000 square feet for its U.S. headquarters in a new Manhattan development called The Spiral, added another 35,000 square feet this year, in part because employee participation increased to 80 % from less than 40% at its old space.

“It was clear we needed more space almost immediately,” a spokesman said.

Investors are noticing the change in market psychology. In October, developer Tishman Speyer completed a $3.5 billion refinancing of a revitalized Rockefeller Center, the largest issuance ever for a single office asset. That paves the way for other owners of other well-leased office properties to follow, analysts said.

“Demand in the market (from bond buyers) was not only growing, it was unmet,” said Rob Speyer, the firm’s chief executive. That interest convinced him to refinance in August, even though the debt on the building wasn’t due until the middle of next year.

While office building sales volume remains tepid, investor interest in distressed office properties has picked up after prices have fallen. Real estate firm Eastdil Secured has completed 18 office sales this year worth $2.6 billion led by divesting lenders, according to people familiar with the matter. That compares with three of those types of sales at this time last year, the people said.

“Things are looking better from a valuation perspective for the office sector than they have ever been,” said Dylan Burzinski of property analyst firm Green Street.

Gina Heeb contributed to this article.

Write to Peter Grant at [email protected]