Office real estate in the United States - statistics & facts
The office real estate market is undergoing a seismic shift, with vacancy rates on increase and declining property values. From the bustling streets of Manhattan to the tech hubs of San Francisco, the global landscape of office leasing and investment tells a tale of uneven recovery and adaptation since the COVID-19 pandemic. With a quarter of office inventory projected to be in poor condition by 2030, the sector faces a critical juncture that could reshape urban skylines for decades to come.
Although the uncertain economic climate has affected all major commercial real estate asset classes, offices emerged as the property type with the lowest total return in the first quarter of 2024, according to the NCREIF Property Index. That was largely due to a decline in property values of over 21 percent. According to data from the CoStar Repeat-Sales Index for office real estate, this trend began in early 2021, with the value-weighted index in March 2024 falling to 2013 levels.
The elevated vacancies and the growing trend of repurposing office stock paint a picture of an office real estate market grappling with fundamental shifts in workplace dynamics and property utilization. Amid these challenges, prime offices have shown resilience, demonstrating that the office has a future.
Repricing in the office real estate market
Weakening occupier demand has left a large share of U.S. office space vacant, affecting investor returns. In the third quarter of 2024, the vacancy rate in the office market reached approximately 21 percent. That was an increase from 13 percent in the first quarter of 2020 and higher than the average vacancy rate for any other property type. The declining leasing activity has had wide reaching impacts, including a decline in investment transactions, a repricing in the sector, and rising delinquencies.Although the uncertain economic climate has affected all major commercial real estate asset classes, offices emerged as the property type with the lowest total return in the first quarter of 2024, according to the NCREIF Property Index. That was largely due to a decline in property values of over 21 percent. According to data from the CoStar Repeat-Sales Index for office real estate, this trend began in early 2021, with the value-weighted index in March 2024 falling to 2013 levels.
Opportunities in the office market
Despite the challenging environment, industry experts anticipate a slight improvement in the development prospects for office real estate in 2025. Rising leasing volumes and positive net absorption in some of the major markets such as Dallas-Fort Worth and Manhattan suggest recovering occupier demand. This trend, however, primarily affects prime offices, which are high-quality buildings in highly desired locations. Conversely, older buildings increasingly face the risk of obsolescence. This has given rise to a growing number of office conversions, promising to breathe new life to urban districts and bring new supply of multifamily, life science, and hotel real estate to the market.The elevated vacancies and the growing trend of repurposing office stock paint a picture of an office real estate market grappling with fundamental shifts in workplace dynamics and property utilization. Amid these challenges, prime offices have shown resilience, demonstrating that the office has a future.
