Office absorption predicted to turn positive in 2024
Right now, though, the office vacancy rate is at 17.8%, the highest since 1993.
It won’t be until next year that net office space absorption is projected to turn positive in 2024 and will total approximately 30.6 million square feet for the year, according to a report this week from NAIOP.
The forecast accounts for the possibility of a recession in 2023 (a 60% likelihood), with economic growth in 2024 expected to support a recovery in the office market.
NAIOP reported a 17.8% vacancy rate in office space through the first quarter of 2023, its highest level since Q2 1993. Average office occupancy across the 10 metropolitan markets tracked by Kastle Systems remains at only 49.9%.
Fitch said this week that it’s pushed its forecast for a U.S. recession to late 2023 from mid-year.
“A currently strong labor market is combining with fears of a looming recession to limit occupiers’ interest in signing new leases,” according to the report.
With the unemployment rate at 3.4% – the lowest since 1969 – “the competition for talent is supporting the continuation of hybrid and remote work policies,” it wrote.
Moody’s Analytics in March published a report saying that Class A office was no longer a safe haven and that “for the first time in over a year, Class A urban office performance has hit the skids.”
Moody’s went on to say office vacancy could reach 19.3% in the near term.
The forecast by Hany Guirguis, Ph.D., Professor, Economics and Finance, Manhattan College; and Michael J. Seiler, DBA, J.E. Zollinger Professor of Real Estate & Finance, College of William & Mary; is derived from the methodology of leading, coincident and lagging variables including the growth rate in the real gross domestic product (GDP); corporate profits of domestic industries; total employment in the financial services sector; and the ISM-NM Inventories Index and ISM-NM Supplier Deliveries Index.
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Those indexes measure increases and decrease in inventory levels and how long it takes suppliers to deliver parts and materials that are integral to service-sector businesses.