The U.S. Office Sector: Further Disruption and Rightsizing May Give Way to a Golden Age
Originally published on May 30, 2023, by Jennifer Lefurgy, Ph.D. for NAIOP.
The NAIOP Research Foundation, as part of its Industry Trends meeting, recently hosted a panel discussion on what’s next for the office sector. Analysts from leading service firms joined NAIOP Research Foundation Governors and office developers Greg Fuller, president and COO, Granite Properties and Paul Ciminelli, president and CEO, Ciminelli Development, to discuss problems and potential opportunities. The panelists agreed that the sector will undergo a shakeout that will include transformation, streamlining, new approaches to work and holistic solutions.
A “Broken” Market
Remote work and economic headwinds have created a negative demand shock in the office sector and a temporarily “broken” market that has not yet reached stability. Before the pandemic, office workspaces were densifying, with less square footage assigned per employee. Remote work and downsizing accelerated this trend, with tenants now needing less space per employee. Although office-using employment has rebounded from the brief pandemic-induced recession, office space demand has declined sharply. Phil Mobley, national director of office analytics at CoStar, estimated that the gap between office-using employment and previously expected demand could be as much as 400 million square feet. As supply continues to come online, vacancy rates will continue to climb over the next three years with negative absorption levels higher than during the Great Financial Recession.