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Office space remains one of the toughest commercial real estate markets since the COVID-19 era as CoStar reported vacancy hit an all-time high to start the year.
Nationwide vacancy in office buildings is at 12.9 percent. Availability of space is at 16.4 percent. Both are record highs, according to a new report from the commercial real estate giant.
Vacancy rates now exceed the peak hit during the Great Recession, CoStar said, adding that there’s reason to believe vacancy could climb even higher. And while leasing activity slightly grew in the first quarter, tenants are leasing smaller spaces as the industry continues settling into life after the pandemic.
“Today’s hybrid work arrangements mean that the same office can support more workers,” CoStar said. “We used to call that ‘density,’ but that term feels out of date now since fewer workers are using the space at any given time, making it feel less dense.”
Office availability is space that is currently occupied but is no longer needed, such as a tenant who doesn’t plan to renew a lease or is attempting to sublet space. As that metric is on the rise, CoStar expects the vacancy rate to continue ticking upward.
New lease activity jumped 5 percent during the first quarter of 2023 compared to the fourth quarter of 2022. It remains 16 percent lower than its pre-pandemic average, according to CoStar.
The office slowdown indicates an ongoing struggle for one of the biggest real estate asset classes across the country. Other analysts have predicted more pain ahead.
Earlier this month, an analyst with Morgan Stanley Wealth Management predicted a 40 percent drop in commercial real estate prices. That would be a steeper drop than the fallout that occurred during the Great Recession.
That report followed another by CoStar that found the sale of apartment buildings had slowed at the lowest volume since 2009.
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