Return-To-Office Mandates Can Cost More For Companies Than Wasted Real Estate

Yahoo

07-03-2025

As demand for office space declines, companies are being advised to forgo strict return-to-office (RTO) mandates and instead allocate funds toward creating workplace environments that enhance the employee experience.
The recently released McKinsey & Co's Future of the Office report projects that office space demand in major cities will decline by 13% by 2030, putting $800 billion in real estate value at risk. This poses a direct challenge to corporate leaders enforcing RTO policies in response to long-term leases signed before the pandemic, which have since become costly, underutilized real estate expenses.
However, Forbes highlighted that this approach overlooks the hidden costs of mandated office returns, which research shows are contributing to decreased productivity, lower employee morale, high turnover rates, and costly talent acquisition. A case study of a professional services firm in New York City illustrated the underlying issue with numbers.
A firm with 1,000 employees spends an estimated $18 million annually on real estate. If 50% of employees work remotely, half of that investment — $9 million — becomes a sunk cost.
However, a forced RTO policy can result in a conservative 30% turnover rate, and recent research shows that nearly 42% of recent turnovers are attributed to forced RTO policies. With an average salary of $125,000 and a replacement cost of 1.5 times the salary, the economic cost of replacing 300 employees who quit because of rigid RTO mandates would amount to $56.25 million.
Research also showed that it took organizations 23% longer to fill positions vacated due to the enforcement of RTO policies. The numbers are far more than the $9 million wasted in real estate.
For the corporate leaders who believe in-person workers are more productive, a 2023 study by Stanford University's Nicholas Bloom found that hybrid workers are 9% more productive than those working fully in-office. Additionally, companies that adopt flexible work models report higher employee engagement, which directly correlates with improved business performance.
Strict RTO mandates are driving away top talent. A 2023 Gallup survey revealed that 76% of employees would consider quitting if remote work options were taken away. Considering the McKinsey report, the offices of the future must be designed to foster connection, with hybrid and flexible work environments centered around intentional in-person experiences that promote greater innovation and engagement.
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