US Office Market Not Expected To Recover Until 2024

USA – The country’s office market is unlikely to rebound to pre-COVID levels until 2024, but a record number of new business startups is projected to help drive demand in the office space industry, reported GlobeSt on Wednesday night (29 December, SGT).

However, the office space requirements of these startups remain unclear, Hessam Nadji, President and Chief Executive of commercial property research provider Marcus and Millichap, said during CNBC’s Power Lunch this week.

“With office space, the question is what will the hybrid work environment look like: Will there be less demand for office space per worker?”

“We believe there will be and that will shrink demand⁠. But at the same time when you have record number of new business startups and economic growth, you’ll see new demand.”

Although some business startups will likely need to lease commercial property, many are likely to be 1-person shops, while the rest of their staff will work from home (WFH), or perhaps flexible workspaces.

In the long term, “those 2 factors are going to offset each other, but in the short term you’re going to have these fits and starts when it comes to office space,” he explained.

Moreover, Nadji revealed that office markets such as Texas and Arizona will benefit the most as these are attracting most of the interstate migration of new companies across the US. Another promising market is Florida, where developers are constructing new office space to keep up with demand.

But in office markets like Chicago, New York City, and San Francisco – where office vacancy levels are high and the prevalence of hybrid work arrangements would impact demand for workspace – the prospects of their office markets will depend on “future job growth,” he noted.

“The business formations that we are seeing are promising, but they have a long way to go to replace the vacated office space.”

Furthermore, he pointed out that average office leases have a remaining tenure of 3.5 years. This means office landlords “are still financially fine because most tenants have survived and are paying their rent.” But when the leases expire, tenants are expected to review whether they will still need to rent the same amount of office space.