Market Equilibrium and the Post-COVID Office Space Rebalancing

Introduction

Demand for office space and associated industries has been utterly transformed by the COVID-19 pandemic, precipitating the commercial real estate sector’s dive into a profound recession. Buildings stood empty as office vacancy rates hit all-time highs, and office-centric economies—furniture manufacturers, sellers of I.T. infrastructure communications—lost staggering amounts of revenue as remote work suddenly became routine. The demand for office space has started to tick up again, though, since 2025, when companies—including big employers like the federal government—mandated a return to in-person work. That kind of change reflects the principle of market equilibrium—it doesn’t occur on a dime; it takes time for supply and demand to respond to outside jostles and come into balance.

The Decline in Office Space Demand

Demand for commercial office space fell sharply during the pandemic. Last year the real estate services firm CBRE reported vacancy rates in major American cities, including 18 percent in San Francisco and 22 percent in New York, were at historic highs. It caused ripple effects in related sectors. The market for office furniture—a category that includes office chairs, filing cabinets, etc.—shrank by more than 15 percent in 2021, according to the Business and Institutional Furniture Manufacturers Association (BIFMA). IT service providers, too, showed weaker sales for hardware and office networks; global IT spending on corporate infrastructure fell 8.4 percent in 2022, according to Gartner Research.

Adjustments in Market Supply and Demand

In a continuing pandemic, the commercial real estate sector reacted by repurposing office buildings for other uses. Over 13 million square feet of U.S. office space became residential units in 2023, based on a Cushman & Wakefield study. Landlords with failing buildings by the time they sat empty found conversion far more lucrative than leaving them empty. At the same time, providers of office-related goods and business services broadened out what they sold, such as furniture makers segmenting out home office items for consumer homes, and I.T. offering services that enabled remote working.

But elsewhere, other things at normal market equilibrium rebalancing should ultimately come from supply adjustments as demand weakens. This forecast played out as early as 2025 when large organizations—the U.S. government, for example—required in-person work, and many businesses had to reevaluate their office spaces. Leased office space in Washington, D.C., will increase by 14 percent, the U.S. General Services Administration (GSA) announced on Friday, reversing a declining trend in 2025.

The Partial Rebound in Office Demand

The return to the office can be seen in Google’s announcement in 2025 that workers would need to be on-site at least three days a week and Amazon’s rapid expansion of physical office space. This transition has created a new demand for office furniture and IT hardware—and that has bolstered a slight recovery in these sectors. 2025 BIFMA backs a 7% recovery of commercial furniture sales and IT infrastructure investments, fighting back at +5.6%, per IDC Research.

However, the market has not fully reverted back to pre-pandemic conditions. Hybrid work models continue to rule the day, suggesting an all-out return-to-office is never coming. It won’t recover to 2019 demand levels—either on a weekly basis or an annual basis—but will reach a new equilibrium at a lower but sustainable level of consumption. Firms have shifted to more flexible lease structures and invested in multi-purpose office environments as they optimize for a workforce that splits time between home and office.

Conclusion

The post-COVID dynamics unfolding in office space and related sectors are a demonstration of market equilibrium at work. The collapse in demand for commercial real estate and office-related goods in 2024 realigned supply, and a partial recovery in 2025 driven by office mandates, brought new stability. While the office space market won’t ever return to what it was pre-covid-19, a balancing of the ecosystem is occurring, to bring supply and demand levels back in line with one another, at a sustainable rate, just at a different level than what was there.