Office space absorption is expected to remain negative through 2025, with that rate gradually slowing by the end of next year, according to a new report from NAIOP.
The office market performed worse in the first quarter of 2024 than previously forecast, with national office net absorption totaling a negative 13.4 million square feet, the NAIOP Research Foundation’s Office Space Demand Forecast reported.
Some companies might have paused expansion plans due to a reversal of optimism they held late in 2023 about 2024’s prospects.
Elevated interest rates are not helping. They are expected to remain high, at least in the near term.
Jeff Holzmann, COO at RREAF Holdings, said in data lies the ultimate truth. In NAIOP’s report, the occupancy of office space per employee has remained stagnant and fell short of the forecast.
“When it comes to office occupancy, the Location and Quality metric (often measured in terms of A, B, or C Class building) is a key factor,” he said. “The total, net or average figures may not always reflect the local reality, and this is where the art of data interpretation comes into play.
“For historical context, consider that the COVID-19 pandemic created a situation never seen in U.S. history. Office work was effectively shut down from 100 percent to zero in a matter of days. While the pandemic restrictions have been lifted, the return-to-work trend was slower to catch up.”
Some companies adopted hybrid work schedules, some moved on to remote work, and some downsized altogether and never snapped back.
“It’s fair to say that the market has stabilized in the traditional sense with more openness to hybrid. The pandemic did not kill the office culture, at least not in this round.”
Interestingly, companies that did decide to go back to traditional models upgraded, Holzmann said.
“As more space became available, office buildings were foreclosed on and sold in a fire sale, and owners gave concessions to get tenants to stay, many businesses were able to move from class C to class B or even from B to A,” he said. “This opened opportunities for smaller businesses to fill in the gaps, and the market eventually found equilibrium.”
We appreciate and thank Commercial Property Executive, especially Richard Berger, for giving us the opportunity to speak about the current office market. To access the full article on the Commercial Property Executive website, please click here.
