The office space surplus in the United States stems primarily from the significant shift in how office workers operate following the Covid-19 pandemic...
The total amount of vacant office space in the United States is now greater than at any time since 1979, according to new data released by research firm Moody's Analytics. In terms of percentage, the vacancy rate for office space in the country has reached a record high.
The surplus of office space in the United States stems primarily from the significant shift in how office workers operate following the COVID-19 pandemic. For many workers in this country, the traditional five-day work week, from 9 a.m. to 5 p.m. each day, has been replaced by a remote work model, where they enjoy the comfort of being at home while still completing all assigned tasks.
This major shift in work culture has exacerbated the oversupply of office space that was built rapidly in the 1980s and 1990s in the United States, according to a report released by Moody's on January 8.
The nationwide office vacancy rate in the US reached a record high of 19.61% in the fourth quarter of 2023, according to data from the report. Over the past 40 years, the vacancy rate for office space in the US has only reached a peak of 19.31% twice. Before the pandemic, the vacancy rate for office space in the country was around 16.81%.
A high vacancy rate in office buildings is bad news for office landlords and developers, as well as for restaurants, eateries, retail stores, and other small businesses that depend on office workers as customers.
Due to declining office demand, new office construction activity in the US has also fallen to its lowest level since 2012.
However, Moody's report shows that there are still some bright spots in the office real estate market in the world's largest economy. The newest and most modern buildings, located in prime locations and offering many amenities, can be called the A segment, and they continue to attract a lot of interest.
This type of office building attracts tenants because it offers “flexible or smaller office configurations, particularly well-suited for tenants seeking a physical office presence for branding, meetings, training, collaboration, etc.,” the report states.
The report also indicates that suburban offices often have higher occupancy rates than offices in large cities due to their proximity to residential areas, which helps office workers reduce their daily commute time.
According to a forecast released in June 2023, research firm Capital Economics predicts that office property prices in the US will decline by 35% by the end of 2025 and will not return to their pre-pandemic peak until at least 2040. The decline in the office real estate market is said to be similar to the dire situation of shopping malls amid the growing development of e-commerce.
Many large institutional investors such as Brookfield Corp. and Blackstone Inc. have defaulted on some office buildings, choosing to stop making payments rather than continue “burning money” on these loss-making properties. At the end of March last year, office buildings with a total value of approximately $18 billion in the US were considered to be in financial distress, and office buildings with a total value of $43 billion in the country were considered to be at risk of default, according to a report by MSCI Real Assets.
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Source: VNeconomy
