A Little Under 20% Of Offices Are Empty

Office vacancy rates in major U.S. cities have reached their highest levels since at least 1979, according to Moody’s Analytics. As of the fourth quarter, 19.6% of office space was unleased, surpassing the previous highs of 19.3% in 1986 and 1991. This increase is attributed to a combination of factors, including the shift to remote work accelerated by the pandemic, and a long-standing surplus of office buildings dating back to the 1980s and 1990s.

  • The 1980s saw a construction boom, especially in the South, driven by easy lending. Many speculative office projects were built without secured tenants. Bruce Eichner, a developer, recalls building a million-square-foot office tower in Manhattan during this period that was completely vacant.
  • The economic recession of 1990, worsened by the savings-and-loan crisis, left many of these buildings without tenants.

This surplus continues to impact the market, contributing to higher vacancy rates in the U.S. compared to Europe or Asia. Older office parks, particularly those built before the 1990s, struggle to attract tenants. Mary Ann Tighe from CBRE notes that much of the vacant space is in buildings from the 1950s to 1980s.

South Hangover

The hardest-hit regions today, including Houston, Dallas, and Austin in Texas, mirror the past trends where places like Palm Beach and Fort Lauderdale in Florida faced high vacancy rates. Workplace trends have also evolved, with companies moving from large private offices to more compact open floors and cubicles, reducing space requirements per employee. This shift, along with the rise of remote work during the pandemic, has contributed to the increase in vacant office space.

  • Despite parallels with the early 1990s downturn, analysts anticipate a longer duration of high vacancy rates this time, as the trend is less tied to economic cycles and more to the growing preference for remote work.
  • Cities like San Francisco, once having low vacancy rates, now face higher vacancies, especially in sectors like tech that have embraced remote work. Conversely, areas like Palm Beach and Fort Lauderdale have seen significant decreases in their vacancy rates since 1991.

In places like West Palm Beach, Florida, there's a new wave of office construction, focusing on high-end, resilient buildings with amenities like outdoor terraces and pickleball courts. The area has become attractive to major finance firms, marking a shift from the 1980s trend.

Warehouses Also Take A Hit, After Some Exceptional Years

Warehouse vacancy rates in the U.S. have reached their highest level since the pandemic began. The average vacancy rate increased to 5.2% in the last quarter of 2023, up from 4.6% in the previous quarter and 3.1% a year earlier, as per Cushman & Wakefield's report.

  • This is the first time since 2020, when the e-commerce boom due to the pandemic led to a massive increase in warehouse construction and leasing, that the vacancy rate has crossed 5%.
  • During 2020, the demand for storage space surged as companies aimed for rapid home delivery. Amazon, for example, doubled its fulfilment network in just 24 months.

Cooling E-Commerce Activity

However, in the past 18 months, retailers have scaled back on restocking and leasing due to various economic factors, leading to a 27% drop in new leases for warehouse space in 2023. Even though developers have slowed down construction, over 156 million square feet of new space was still added in the fourth quarter, one of the highest ever.

  • Jason Price from Cushman & Wakefield notes a slowdown in construction responding to market conditions. Despite the recent increases, the vacancy rate is still below the 15-year average of 6.4%.
  • Rental prices for industrial space continue to rise, with a 10% year-over-year increase in the fourth quarter.

Strong demand persists in major industrial regions like Houston and Southern California. However, there's a risk of an oversupply of warehouse space, with much of it being built speculatively without confirmed tenants.


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