Expect higher office vacancy rates across the country in 2018 and beyond. The latest research from Cushman & Wakefield says that demand for U.S. office space has already started to fall.
In its most recent U.S. Macro-Forecast report, released in early February, Cushman & Waekfield said that activity in the office market began to wane as far back as 2016.
Demand for this sector reached its peak of 81 million square feet in 2015. It then fell to 53.2 million square feet in 2016 and 49.1 million in 2017. Cushman & Wakefield predicts that office demand will slow further in 2018 to 43.1 million square feet.
One of the reasons for this steady dip? Cushman & Wakefield pointed to the density trend, in which companies are now devoting fewer square feet of office space to every worker. Put simply, companies, relying on everything from shared workspaces to increased telecommuting, are putting more employees in smaller office spaces.
Demand for office space is decreasing, too, because of slowing job growth in the major office-absorbing markets, including New York City, San Francisco and Los Angeles, Cushman & Wakefield said. The company’s forecast calls for 1.1 million new office-using jobs to be created during the next three years. That’s about half of the pace of 2.1 million jobs from 2015 to 2017.
Even though absorpton rates are on the decline in the office sector, leasing activity in this space remains strong, Cushman & Wakefield reported. In 2017, new leasing activity totaled 314.5 million square feet. That’s the first time during this cycle that the threshold of 300 million square feet was topped.
“Slowly rising vacancy rates, especially in the nation’s CBDs, will become a key theme over the next few years,” said Rebecca Rockey, Head of Forecasting for the Americas for Cushman & Wakefield, in a statement.
Rockey also said that new office supply will be increasingly driven by secondary markets, with an additional 97.9 million square feet delivering by 2020.
