NAIOP Expects US Office Absorption To Fall Sharply In 2023
USA – Researchers from the National Association of Industrial and Office Properties (NAIOP) forecasted the office absorption may likely plummet next year, with the overall tally for 2023 to slightly exceed estimates for Q4 2022 alone, reported GlobeSt on Tuesday evening (13 December, SGT).
Hany Guirguis of Manhattan College and Michael Seiler of the College of William & Mary expect office absorption for the 4th quarter and the whole of 2023 to reach 7.1 million sq ft and 8.1 million sq ft respectively.
For the first 3 quarters of 2024, office absorption across the United States is estimated to hit 13.3 million sq ft.
“The mere threat of a recession has caused tenants to take a defensive posture and become more cautious when renewing leases, with many instead choosing to move to a smaller, newer and more flexible footprint,” explained the duo.
“Moreover, the large supply of space available for sublease weakens rental rates and contributes to lower net absorption.”
The researchers’ projection references historic data on the economy and office space absorption. Notably, it assumes there is a 60 percent chance of a recession in 2023. If a downturn does happen, the net absorption is forecasted to turn negative next year. If a recession doesn’t occur, office absorption will surpass the forecast.
Still, the duo highlighted that there’s an ongoing flight to quality trend. “A deeper look into the numbers reveals an appetite specifically for high-quality office buildings, which may support leasing activity in newly completed buildings despite continued weakness across the office sector.” However, the ongoing flexible working arrangement is projected to further temper office demand.
Nonetheless, Newmark analysts forecasted that “high-quality” office buildings in dynamic suburban markets may have an edge over traditionally stable downtown office properties, with the upper end of the office market benefiting from “relatively high availability, downward pressure on rents and greater demand for a vibrant worker experience”.
