While the lasting effects of the shift to working from home remain unknown, we do expect steady returns to the office for many companies.
In its Office Space Demand Forecast released late last month, NAIOP is projecting a return to positive absorption of office space in the fourth quarter of 2021. Quarterly net absorption in 2022 is expected to average 11.7 million square feet, in line with the 2015-2019 quarterly average of 11.6 million square feet. Net absorption is defined as the amount of space that is physically occupied at the end of one period, less the amount of space occupied at the beginning of the same period.
Several factors are contributing to economic growth, with corresponding employment gains in office-using industries. During the past year, consumers saved money at unprecedented rates, increasing their disposable income. Interest rates remain low, and states continue to lift pandemic restrictions. All signs point to an expansion in the economy with substantial support from an accommodative Federal Reserve and fiscal stimulus.
As tenants begin to return to the office, it remains to be seen whether there will be a lasting increase in remote work and how that might affect long-term demand for office space.
“The macro economic data are positive, and the mitigation of the pandemic through vaccinations and other measures are having a noticeable impact,” said Thomas J. Bisacquino, president and CEO of NAIOP. “While the lasting effects of the shift to working from home remain unknown, we do expect steady returns to the office for many companies, and as a result, positive economics for the office sector.”
This forecast assumes a continued rebound in real GDP for the remainder of 2021, 2022 and 2023. Real GDP is expected to expand by 7.7% in the next two years, with average unemployment of approximately 4.5%.
The report’s authors are Hany Guirguis, PhD, Manhattan College and Michael J. Seiler, DBA, William & Mary and the University of Cambridge.
NAIOP, the Commercial Real Estate Development Association is the leading organization for developers, owners, investors and related professionals in office, industrial, retail and mixed-use real estate. NAIOP provides unparalleled industry networking and education and advocates for effective legislation on behalf of our members. NAIOP advances responsible, sustainable development that creates jobs and benefits the communities in which our members work and live. For more information, visit naiop.org.