Originally published in June 2023 by Hany Guirguis, Ph.D., Manhattan College and Michael J. Seiler, DBA, College of William & Mary for NAIOP.
Demand for Office Space Expected to Shrink Through Early 2024
The national office market experienced total negative net absorption of 21.3 million square feet through the fourth quarter of 2022 and the first quarter of 2023, bringing the vacancy rate to 17.8 percent, the highest level since the second quarter of 1993.1 The COVID-19 public health emergency officially ended in the United States on May 11, 2023, but remote and hybrid work arrangements remain largely in place and continue to negatively affect demand for office space.
A currently strong labor market is combining with fears of a looming recession to limit occupiers’ interest in signing new leases. With the unemployment rate at 3.4 percent,2 the lowest since 1969, the competition for talent is supporting the continuation of hybrid and remote work policies. Although a gradually growing share of employers are requiring employees to come into the office four or five days a week, three days remains the norm in many office-using industries, and a minority of employers require fewer days in the office or allow a large share of their employees to be fully remote. Average office occupancy across the 10 metropolitan markets tracked by Kastle Systems remains at only 49.9 percent.3 At the same time, few firms are interested in expanding the amount of space they lease as they prepare for a potential recession later this year. As a result, while office-using employment has risen to 5.4 percent above pre-pandemic levels, occupied office space is 3.5 percent below pre-pandemic levels, and the average amount of office space per employee has fallen to a 22-year low of 152 square feet.