Maybe I’m incorrect, but weren’t they offered an apartment at Kensington ? And turned it down?
I'm not quite sure what exactly transpired. There were talks about a Kensington apartment and even some renovations, I think, and then they got Frogmore. I think it all happened around the time of the (in)famous Australian tourney.
TBH, in the wake of everything that happened (Knauf's 2018 emails about unacceptable behavior towards staff during this tour and Harry's frantic attempts to make it look like there was no other reason to dislike them after this tour besides pure envy at Meghan's colossal success, which he wanted to make out look unprecedented and dwarfing everyone else's ever, the supposed change of plans re housing, the way they left for Canada and returned without Archie, only to post a message in which they had no intention to leave royal life but work and be HIHO and particularly the conversations with Quibi which Harry and Meghan didn't even try to hide despite the fact that working with such a platform goes against every convention, the tastleless attack on titled members of the RF who work for themselves and not the Crown), I'm not at all sure the RF was so shocked and devastated to see them go.
I believe they overestimated their own importance, threw hissy fits over taking a second place to more senior members of the family (Meghan who suffered so much at being pushed back never told us how silly it was to push Eugenie's wedding back to accommodate Harry and hers and always pushed forth before Harry and even TQ.) I suspect that since these months of negotiations, in which they weren't getting what they wanted, they told the family outright that it should bow to all their demands or else they'd leave and the RF would lose its brightest stars who had a bright Hollywood future ahead of them. And they were shocked when they received a "Very well then, should we book you the tickets or do you know how to?" Hence the ill-worded, ill-sounded HIHO message, a last attempt to force the RF's hand into giving them what they wanted by making it seem that they had reached an agreement already and banking on the assumption that the RF wouldn't dare suggest they're liars publicly.
Something did happen around the time when their housing changed and I don't think it was good.
ETA: The RF might be saddened and Charles even devastated by the way the personal relationship disintegrated but I believe that in their working capacity, they were glad they wouldn't have to deal with an unpredictable pair who didn't know a thing but was certain it could and should change the monarchy in the best way possible. Their way.
Given the way trouble seemed to follow Harry and Meghan whenever they went abroad to represent the monarchy, I can only think it was reasonable of the RF to make sure that they weren't recognized as its representatives anymore - no HRH for anything of substance save for a headline or as it was, walking behind the coffin, no royal patronages, no honorary military ranks for Harry. It was just made over time, so it wouldn't fuel into their victim narrative.