Q3 2023 U.S. Office Real Estate Market Report
The office real estate market remains subdued as industry players across the country settle in for an extended down period of demand. So far this year, 2023 is on pace for the largest amount of negative net absorption on record. Vacancy is at a record 13.4% and is predicted to continue climbing for the foreseeable future. Older properties suffer from an extreme lack of demand. The future of the office real estate market is highly uncertain, exacerbated by the fact that 65% of leases are expiring over the next five years.
There is resiliency at the top of the market, including five-star and new-vintage buildings, where rent growth has remained positive.
National office real estate trends
- Tenants vacated another 13.6 million square feet (SF) more than they occupied in Q2 2023, bringing 12-month net absorption to negative 58.1 million.
- About 216 million SF of sublease space is available on the market, a rise of more than 130% since the end of 2019 and nearly 80% above its previous peak during the Great Recession.
- Landlords and owners are continuing to grant longer periods of free rent and higher tenant improvement packages.
- At 7 million SF, groundbreakings in Q2 2023 were the lowest since the Great Recession. About 115 million SF of office space is still under development, which will add to the glut of high-quality space from which tenants in the market will be able to choose.
- Construction starts on office buildings are now slowing further, due in part to a difficult lending environment.
- The office sector has witnessed a significant decrease in transaction volume. Though sales have slightly edged past the pandemic’s lowest points, Q2 2023 concluded with transaction volumes 66% below the five-year average leading up to 2019.
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