Office Shortage In the US

CoStar Warns Of Impending Office Shortage In the US

USA – CoStar expects a looming office shortage in the country, particularly Grade A office buildings, with major corporate tenants likely to compete for top-notch quality workspaces in the coming years, while demand for inferior quality workspace would remain sluggish, reported CNBC on Monday morning (27 November, SGT).

In fact, TCW Group’s President and Chief Executive Katie Koch said in October that as much as 33 percent of office space across the United States could be removed from the market.

CoStar’s forecast of a looming office shortage is based on an analysis of the present statistics on office rental activity and building activity compared to recent market history. The commercial property data provider said newly constructed office properties age 0-3 years are clearly seeing higher demand, attracting more than 175 million sq ft of net new occupancy since the start of 2020 at an average rate of 12.7 million sq ft per quarter. Between 2011 and 2019, the quarterly average for similar properties was only 11.7 million sq ft.

“Modern, premium office space remains in demand, just as it has historically, even during difficult economic times,” noted CoStar Group’s National Director of office analytics Phil Mobley.

Moreover, the office stock will increasingly not be able to support leasing demand, as office buildings age 0-3 years only account for 2.4 percent of the total supply in the country. While this figure is in line with average from 2015 to 2019, Mobley explained that construction of office towers has slowed down sharply.

Under 30 million sq ft of office space broke ground so far this year, making 2023 the lowest year for construction starts since 2011. Today, there is about 200 million sq ft of office space in buildings age 0-3 years, but that statistics will be lower than 150 million by early-2026 and under 100 million by the middle of 2027. At that point, such commercial properties will only comprise around 1 percent of the overall office supply in the country. Even after the 2008 financial crisis in 2013-2014, buildings age 0-3 years never made up less than 1.3 percent of the total office stock.

“The very type of space that tenants have historically demanded most — even during recessions — will be in short supply,” added Mobley.

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