Office Development Sees No Sign of Relief as National Office Vacancy Rises to 18.8%

The U.S. office market continues to struggle, with recent data from CommercialEdge showing no signs of improvement.

Rising Vacancy Rates

In April, the national office vacancy rate rose to 18.8%, a significant year-over-year increase of 210 basis points. The tech markets are the hardest hit, with San Francisco experiencing a 650 basis point increase, and both the Bay Area and Seattle seeing increases of 400 basis points. Financial hubs like Dallas and Charlotte also faced substantial rises in vacancy rates, 390 and 380 basis points respectively. Even cities known for lab space, such as Boston and San Diego, saw increased vacancies despite the in-person nature of life sciences work.

Decline in Office Construction

The amount of office space under construction has dramatically decreased. By April, only 83.7 million square feet were being built, marking a reduction of over 50% in the past 18 months. New office starts have nearly halted in 2024, with just 3.2 million square feet initiated by the end of April, compared to 44.2 million square feet in 2023.

Future Outlook

CommercialEdge suggests that interest rate cuts might eventually spur developers back into the office sector, but this revival could take years to materialize.

Current Market Activity

Despite the downturn, there has been some office activity, with $7.5 billion in office transactions so far this year and properties trading at an average of $157 per square foot.

Employment Trends

The labor market for office-using sectors showed losses in April, with a total of 6,000 jobs cut. The information sector saw the largest decline with 8,000 jobs lost, followed by professional and business services with a 4,000 job reduction. Financial activities, however, saw a growth of 6,000 jobs. Over the past year, office-using employment has grown only 0.4%, with the information sector declining by 1.3%.