The latest NAIOP Office Space Demand Forecast predicts that net absorption of office space – the amount that is leased or occupied less the amount that is vacated– will remain negative through 2023, but will turn positive in 2024. The forecast accounts for the possibility of a recession in 2023, with economic growth in 2024 expected to support a recovery in the office market.
Nationally, net office space absorption in the remaining three quarters of 2023 is expected to be negative 24.4 million square feet. The forecast projects that positive net absorption will total approximately 30.6 million square feet in 2024.
The national office market experienced total negative net absorption of 21.3 million square feet through the fourth quarter of 2022 and the first quarter of 2023, bringing the vacancy rate to 17.8%, the highest level since the second quarter of 1993.
The report is authored by Hany Guirguis, Ph.D., Manhattan College, and Michael J. Seiler, DBA, College of William & Mary.
Among the report’s additional key findings:
• The COVID-19 public health emergency officially ended in the United States on May 11, 2023, but remote and hybrid work arrangements remain largely in place and continue to negatively affect demand for office space.
• A currently strong labor market is combined with fears of a looming recession to limit occupiers’ interest in signing new leases. With the unemployment rate at 3.4%, the lowest since 1969, the talent competition is supporting the continuation of hybrid and remote work policies.
Few firms are interested in expanding the amount of space they lease as they prepare
for a potential recession later this year. As a result, while office-using employment has risen to 5.4% above pre-pandemic levels, occupied office space is 3.5% below pre-pandemic levels, and the average amount of office space per employee has fallen to a 22-year low of 152 square feet, according to CBRE.
“Few have been able to predict the rates of workers returning to work in offices, and each company is creating its own culture and policies as we emerge from the pandemic,” said Marc Selvitelli, president and CEO of NAIOP. “Post-pandemic patterns are the key driver, and we expect to see positive absorption starting to take root in 2024.”
The NAIOP Research Foundation was established in 2000 as a 501(c)(3) organization to support the work of individuals and organizations engaged in real estate development, investment, and operations. The Foundation’s core purpose is to provide information about how real properties, impact and benefit communities throughout North America.
NAIOP, the Commercial Real Estate Development Association, is the leading organization for developers, owners, and related professionals in office, industrial, retail, and mixed-use real estate. NAIOP comprises 20,000 members in North America.
NAIOP advances responsible commercial real estate development and advocates for effective public policy. For more information, visit naiop.org.
