It was early March 2020 and a new virus called COVID-19 was about to take the U.S. by storm, changing almost everything about the way people worked, played and related to others.

In New York and other large cities across the U.S., mandated lockdowns forced companies to permit employees to work from home rather than risk spreading COVID from person to person. Frightened workers were happy to comply and keep their jobs.

The effect on stocks, and particularly real estate investment trusts (REITs) that invest in office buildings, was brutal. Leading New York City landlord SL Green Realty Corp. (NYSE:SLG) fell from $75 to $30 in a month. Another industry stalwart, Boston Properties Inc. (NYSE:BXP) fell from $125 to $66.

After finally bottoming in October, office REITs began an extended rise that brought them close to their prepandemic prices by March 2022. But in April, rising inflation led to 10 consecutive interest rate hikes by the Federal Reserve, once again crushing the share prices of office REITs. Interest rate hikes make it more difficult for REITs to borrow the money needed to finance new buildings and more expensive to pay off any adjustable loans that were already in effect.

Don't miss:

• Outperforming Buffett: How These Accredited Investors Achieved Superior Returns

• Elon Musk Is Bullish On Austin. Here's How To Invest In The City's Growth Before He Floods It With New Tech Workers

Companies also discovered that it was less expensive to have employees working from home. They could downsize their office space and pay less for rent and utilities. Workers also loved being at home, as they could save money on commuting costs, clothing and not eating in expensive city restaurants. Parents with small children were also able to cut down on day care costs. Even as the presence of COVID-19 began to abate, nobody wanted to return to the office.

Wall Street analysts began to predict the demise of office buildings and downgraded office REITs while slashing price targets as well. Analysts from Scotiabank, BMO Capital Markets, Citigroup and Barclays all downgraded SL Green between December 2022 and March 2023. Others maintained their ratings but slashed price targets. In March, Citigroup maintained a Sell rating on SL Green and slashed its price target from $35 to $17.

Last winter, analyst downgrades and price cuts told a similar story for Boston Properties and several other office REITs. Share prices of these REITs were down 40% and 50% from their peaks.

In February 2022, Berkshire Hathaway Inc. Vice Chairman Charlie Munger said that nobody is going back to the office five days a week. Munger sent office REITs reeling 14 months later when he stated on CNBC, “A lot of real estate isn’t so good anymore. We have a lot of troubled office buildings.”

But this spring, things are changing. Large companies such as Amazon.com Inc., Apple Inc., Citigroup, Goldman Sachs, Google, Salesforce Inc., The Walt Disney Co., J.P. Morgan and others have mandated that employees return to the office. Companies are discovering that despite the savings, employees are less productive when working from home. Companies also feel that communication and bonding between employees have been suffering.

Some companies have gone as far as to track office attendance or threaten to terminate workers who don’t comply with office mandates. IBM CEO Arvind Krishna told workers that he won’t mandate them to return to the office, but employees who work from home may have difficulty getting promotions.

In May 2023, Tesla Inc. CEO Elon Musk criticized employees who work from home, saying it was “morally wrong” to do so while other employees are forced to work from offices and job sites.

Kastle Systems, a Falls Church, Virginia-based company that tracks workplace occupancy, found its 10-city average occupancy rate, which was 47.6% at the end of May, has risen to 50.3%. New York City has seen the biggest change, rising 4.2% between May 31 and June 7. If this still sounds low, keep in mind that in March 2020, occupancy percentages were in the single digits. Reports of subway ridership in New York City are also increasing from a year ago.

So it should come as no surprise that office REITs are gaining steam and have been one of the leading REIT subsectors since the middle of May. The chart below shows the surging total returns of several office REITs since May 13.

Many of these REITs were oversold in May, yet this rally seems like more than just a “dead cat bounce” off the bottom. Rumors of the death of office buildings were perhaps a bit too hasty. The pajama-clad commute from the bedroom to the dining room table may be on the wane, despite a great deal of social media opposition coming from younger workers.

In April, SL Green received an analyst upgrade from BMO Capital, from Market Perform to Outperform, with a $30 price target. Things are looking up in the office REIT subsector.

Over the past five years, private market real estate investments have outperformed the publicly traded REIT market by about 50%. Check out Benzinga’s Real Estate Offering Screener to discover the latest passive real estate investments.

Check Out More on Real Estate from Benzinga