The Office Market: Uncertainty and Change

PUBLISHED FEBRUARY 2025

The pandemic that struck in early 2020 reshaped lives in ways that will be felt for generations. It also profoundly changed the office market. Professional firms, corporate headquarters, call centers, IT operations, and countless other industries had to rethink the way they work. 

Companies that once depended on the in-person collaboration of their employees were forced into a remote model almost overnight. What began as a short-term adjustment turned into a seismic shift in workplace strategy, leaving a lasting impact on office demand across the country.

Five years later (it is really hard to believe how quickly it has passed), many companies are still grappling with the lingering effects of these changes. Hybrid work has firmly entrenched itself as a dominant model, though the degree to which it persists varies by industry, company size, and leadership philosophy. Suffice it to say, a sizeable number of tenants are seemingly right-sizing with any lease expiration roll over. 

With any reductions, some tenants are relocating to higher-quality buildings offering better spaces to attract their employees back to the office. Regardless of the effects on head count, rental rates have ever so slowly escalated across the board. Unfortunately, the increase does not necessarily mean rent growth to the landlord; instead, it reflects the continuing rise of construction costs to finish a tenant space to meet their needs in the new or existing location. 

Construction costs as much as 50 percent above pre-covid costs are not uncommon. Inflation, operating-cost increases, taxes, interest-rate increases, labor and regulation, plus time delays, continue to weigh heavily on the overall cost of office space. 

All these factors plus significant availability of space (about a 11.9 percent vacancy citywide as of Jan. 31, according to CoStar) with the potential for significant adds in the coming years, will continue to flatten and lengthen the decision-making process.

DOGE and the KC Impact

Another possible disruption in office space is emerging under a new administration and efforts to cut government spending. The General Services Administration reports that the Kansas City metro area hosts 4,713,233 square feet of federally leased office space across 47 buildings, with the government paying an annual rent of $108,889,197. While Kansas City’s GSA presence is not as large as in major federal hubs, it remains a substantial segment of the local office market.

Looking ahead, 1,296,220 square feet of federally leased office space in Kansas City is set to expire between 2025 and 2030. Additionally, 1,411,787 square feet of space—some of which overlaps with the expirations—can be terminated within this same time frame. This means a significant portion of the federal footprint in the metro could be reduced over the next five years, depending on the situation.

This level of potential vacancy injects another subset of uncertainty into Kansas City’s office market, which has already experienced significant change since March 2020, with potentially more to come. The situation mirrors the uncertainty surrounding the federal work force itself. 

The incoming administration issued an executive order to mandate a full return to the office for federal employees, yet numerous caveats have delayed implementation in Kansas City and other regions. Complicating matters further, layoffs within federal agencies have directly impacted the employees expected to occupy these office spaces. It begs the question, are we coming or going?

The Future of the Market

While it is difficult to predict the exact outcome, it is likely that the federal government will reduce its office footprint in Kansas City through a combination of lease expirations and terminations. This shift will put additional overall pressure on a market already dealing with elevated vacancies, tenant downsizing, increased costs, employee discontent, and evolving work-place strategies.

The good news is that the office market world continues to “wake up” and it’s generally a good time to be a “Tenant.” Positive recent job growth numbers will push demand, and lease transactions are happening! Year by year, companies and the Fed will continue to figure out what actually works for them as the employer, employee work shift continues and will react accordingly. So upward and onward to a new year of potential growth in office.

For landlords, investors, and market participants in Kansas City and beyond, the coming years will require careful strategy and adaptability to meet the realities of an ever-changing landscape.