Originally published on December 19, 2022 by Eliza Theiss for NAIOP E-Newsletter.
Although many in the industry had assumed that the office market would stabilize in 2022 – and perhaps even begin to recover pandemic losses – this stabilization did not occur. Rather, wider economic changes; repeated interest rate increases by the Federal Reserve; the further establishment of work-from-home and remote office arrangements; and increasing numbers of office footprint reductions by businesses caused vacancy rates to continue to rise throughout the year. At the same time, rent growth remained patchy.
Listing Rates Show Significant Growth, But Only in Select Markets
Large segments of the office-using sector have adopted remote and hybrid work (at least in part) since the start of the pandemic. Accordingly, the demand for offices has decreased in most markets. In addition, many businesses have also reduced the size of their offices, while others have firm intentions to do the same in the near future. As a result, the national vacancy rate – which reached 16.3% in November – was 150 basis points (bps) higher than it was in October 2021, according to the most recent CommercialEdge report.
In fact, during the last 12 months, vacancy rates increased in 86 of the 120 areas monitored by CommercialEdge, including 22 of the 25 most significant markets. Specifically, the leading U.S. office markets with the largest vacancy rate increases were San Francisco (+390 bps) and Portland, Oregon (+400 bps).
