New York Exemplifies the New Definition of Office Oversupply

The typical current analysis of office space revolves around average occupancy rates driven by work-from-home. A more accurate analysis, a report from Savills earlier this year, is about oversupply.

Not construction booms, which they say are the historical sources of oversupply. Nor even “vast development of new buildings, and not enough occupier demand to fill such space.” Instead, Savills points to obsolete buildings with chronically high availability combined with the post-pandemic “new normal” hybrid workplace business model.

One could quibble about oversupply versus obsolescence. The latter is ultimately the result of the former aggregated over time without attention to keeping existing buildings as up-to-date as possible. The results are the same — too many buildings with too much space that too few companies want.

Savills used New York City as an example. It tracks 467.8 million square feet of office space and said that the overall availability rate is 20.1%, concluding that by the end of 2024 Q1, there were 94.0 million square feet of available space on the market.

But those gross numbers assume all the space is equivalent in availability, desirability, and marketability. The point of the analysis is that it isn’t. The report discusses a “true availability rate.”

Part of the screening process includes 21 buildings, whether known as a fact or rumored, being converted for other uses like housing. That cuts 2%, or 5,133,392 square feet from available space. Another eight buildings with a total of 6,525,823 square feet of space fall under the category of obsolete, based on Savill’s proprietary building analysis of having “chronically high availability and little to no leasing activity.” That dropped the effective availability rate by another 90 basis points to 19.2%.

Even so, by removing such buildings from existing inventory, the office space per office-using worker metric only drops from 310.2 to 303.1. That is still considered oversupplied when compared to national metrics of 212.3 and global metrics of 10 square meters per worker, or 107.6.

There are actions cities can take, according to Savills. One example in New York City is a “City of Yes” plan, instituted in August 2023, to change old zoning laws and, in part, enable the conversion of vacant office space into housing.

However, as experts have told GlobeSt.com for years, this is not necessarily easy, straightforward, or cost-effective. Many office buildings lack inherent characteristics of size and shape — a square building, for example, may not allow exterior windows for all units required by code.