More office space is currently sitting empty in the United States than at any point since 1979, said Moody’s Analytics, which began tracking office leasing vacancies that year.
The surplus of office space is mainly due to the massive shift in how employees show up for their jobs following the Covid-19 pandemic.
For many workers, the traditional five-day-a-week, 9-5 office life has been replaced by hybrid work from the comfort of their home. This massive cultural change also exacerbated an overabundance of supply that had been built in the 1980s and 1990s, according to the report, released Monday.
The national office vacancy rate rose to a record-breaking 19.6% in the fourth quarter of 2023, Moody’s Analytics said. That’s the largest quarterly increase since the first quarter of 2021, and larger than the 19.3% level reached twice in 40 years.
The average pre-pandemic office vacancy rate was around 16.8%.
A high office vacancy rate is bad news for landlords and developers eager to fill their buildings, and also for the restaurants, retailers and other small businesses whose livelihoods depend on office workers.
In the face of the dwindling demand for office space, new construction has cooled to the lowest levels since 2012.
However, there are a few bright spots in the office space market. The newest and most modern buildings in the best locations with lots of amenities, a category known as Class A, remain of interest.
This type of building is attractive to tenants because it offers “flexible or smaller configurations [that] are particularly attractive to tenants who decided to keep the physical office footprint for branding, purposeful gathering, training, and collaboration purposes,” according to the report.
The report also pointed out that suburban offices also fared better than typical office spaces located in cities due to their proximity to communities and, in some cases, shorter commute times for employees.
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