Office Occupancy May 'Never Return' To Pre-Pandemic Heights: Green Street
The firm also says office NOI growth will likely not beat inflation over the next five years.
Average office occupancy will likely “never” return to pre-pandemic levels, according to one US-based analyst surveying the sector.
In a recent webinar on the state of the global office market, Green Street’s Daniel Ismail said that while his assessment may be a “bit tongue-in-cheek…structural vacancy in the US has risen several hundred basis points.”
“To put it simply, if remote work causes a reduction in office demand, and if the US supply growth continues at about 1% per annum, unless you have a mass conversion of office space, or demolish office space over the next few years, you’re going to get elevated vacancies across the US,” he said.
Green Street is predicting a 15% reduction in office space demand in the US, a figure the firm says represents “the midpoint of a potentially wide range of outcomes that were set in motion well before the global pandemic accelerated WFH in early 2020.”
The work-from-home movement has minimally impacted some markets in Europe, but has been acutely transformative of company cultures in the US and UK. Office occupiers will also continue to be challenged by heightened commitments to ESG initiatives, according to the firm.
Green Street predicts the office market in much of Europe and the US will continue to be weak in the short term. Private market values in the US are down about 8% over pre-COVID levels, though the firm says confidence in the sector’s performance is hamstrung by a lack of data due to the massive leasing slowdown that began last year. And despite relatively stronger performance by Class A and Sunbelt properties, the firm says office NOI growth will likely not beat inflation over the next five years.