What To Expect From All That Planned Office Construction
Many developers will be forced to delay or cancel projects over the next five to seven years.
A new analysis by Yardi Matrix predicts an “extended period” before the 236.8 million square feet of planned new office stock begins to materialize—a delay the firm attributes to markets adjusting to new and changing end user demands and preferences.
Yardi estimates that the full effects of the COVID-19 pandemic on the office market will take five to seven years to fully play out, and predicts many developers will be forced to delay or cancel projects during that time. Yardi predicts that between now and the end of 2023, 191.5 million square feet of new supply is likely to be delivered nationally, with only 61.2 million square feet delivered between 2024 and 2025.
Currently, 161.9 million square feet of new stock is under construction, with 29.3% located in suburban submarkets. About 128.2 million square feet of that figure is under construction in the top 25 US markets, and more than half the entire new supply figure is in nine of those markets.
Manhattan leads the way with 19,562,053 square feet under construction, followed by Boston with 13,558,478 square feet. Those markets also tend to be the tightest in terms of occupancy, according to recent Commercial Edge data, with Manhattan clocking in at a 10.7% vacancy rate and Boston at 12%.
Nationally, overall office vacancy rates went up by 280 basis points year over year, hitting an overall average of 15.6% across the major markets surveyed by Commercial Edge.
“It’s worth noting that the large-scale shift to remote work is only a contributing factor,” Commercial Edge analysts noted in a report dissecting the data. “A significant portion of new office space was already under construction prior to the onset of the pandemic in early 2020. Therefore, it comes as no surprise that competitive office markets—such as Seattle, Austin, San Francisco and the Bay Area—have seen their vacancy rates increase from single- to double-digits during the last 12 months as projects encompassing millions of new square feet of office space were being delivered.”