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For the past four years, we have seen a steady decline in the demand for office spaces, aggravated by Covid-19, and this trend is ongoing. While office vacancy rates started to rise before the pandemic, remote and hybrid work, layoffs, and higher interest rates further increased office space availability in the market. Overall, the office vacancy rate has risen by 3% since 2019.
At the local level, as the map below shows, the office vacancy rate exceeded 10 percent in many big metro areas. For instance, the office vacancy rate was over 15% in Houston, Dallas, San Francisco, Washington, DC, and Chicago. Conversely, smaller areas experienced lower vacancy rates. With employers demanding a return to the office, many people have already moved back to big city centers. However, that alone was insufficient in dropping vacancy rates in these areas. People continue to move to less dense areas for better affordability. With hybrid work being the new normal, suburbs and smaller areas near big city centers will continue to attract movers.
The overall trend in the office market remains weak, with nearly 2/3 of areas increasing their vacancy rates compared to the pre-pandemic situation.
Nevertheless, these higher vacancy rates haven’t changed the general trend. Specifically, the top 10 worst-performing areas generally continue to be tech hubs that had high office vacancy rates even before COVID-19. It’s just that now these areas are experiencing a further increase in vacant square footage. A mirror trend is occurring with the best 2022 performers; these markets had a low vacancy rate before the pandemic that has decreased even further, letting them onto the leaderboard.
Change in Vacancy Rates Compared to Pre-Pandemic
As we see on the map below, most markets across the country are experiencing a decline in office space demand compared to pre-pandemic. The bigger the market, the larger the decline is. However, smaller markets are experiencing a steady or stronger office space.
The most significant increase in vacancy rates was spotted in main tech hubs like San Francisco, Portland, Seattle, and Denver, as many companies migrated to more affordable places.
The biggest decrease in office vacancy rates was observed in areas within a 2-hour commute of the main tech hubs. With the popularity of hybrid work, people continue to move to cheaper and warmer places since they don’t need to be at their offices every day. Many companies are following this trend, trying to accommodate their employees.
