Office real estate in the United States - statistics & facts
The office sector in the United States continues to suffer shock waves following the coronavirus pandemic. Many companies have moved to a hybrid working model, downsized, or paused their plans to expand office locations. That has led to vacancy rates rising and leasing activity falling. Among many leading office real estate markets, office space absorption remained negative during the fourth quarter of 2023, meaning more office space was vacated than leased. Such was the case in the U.S. tech capital, San Francisco, as well as in Washington D.C. and Chicago. In many markets, including Seattle, Denver, and Austin, the vacancy rate exceeded 25 percent.
The flight to quality since the pandemic has formed a two-speed market. That raises an important question not only about the future of offices in general but also about the future of older stock that does not meet occupiers’ quality standards. One trend to keep an eye on is office-to-apartment conversions – a trend that can increase housing supply in some of the most overheated housing markets in the country.
Office investment and rental rates
Valued at 51 billion U.S. dollars in investment volume in 2023, offices are one of the major asset classes for real estate investors. Investment activity in commercial property has declined considerably since before the pandemic, despite an uptick in 2021. That trend has affected all property types, but the decrease in the office sector has been the biggest. Nevertheless, high-quality spaces remain in demand, with rents in the prime market continuously growing. According to the office rental index, as of December 2023, gross office rents had risen by close to 33 percent since 2008, the baseline year for the index. The most expensive office markets were Manhattan, NY, and East Bay, CA, with an annual square footage rent of 79.6 U.S. dollars and 77.3 U.S. dollars, respectively.Does the office have a future?
The coronavirus pandemic has proved that office work can be flexible but also that office spaces remain popular among employees. The share of people working fully remotely among the remote-capable jobs has stabilized since the second half of 2022, showing that offices are not a relic of the past. The reason is that the office continues to represent the face of the company for many businesses. It is a place for employees to socialize, collaborate, innovate, and meet customers. Although these aspects of office culture are not new, their importance has risen since COVID-19 and hybrid work. That has led to occupiers increasingly preferring modern, high-quality buildings and a growing gap between prime and non-prime offices.The flight to quality since the pandemic has formed a two-speed market. That raises an important question not only about the future of offices in general but also about the future of older stock that does not meet occupiers’ quality standards. One trend to keep an eye on is office-to-apartment conversions – a trend that can increase housing supply in some of the most overheated housing markets in the country.
