The U.S. office market is in uncharted territory as the amount of office space has declined for what is likely the first time in history.
Less than 5 million square feet of new offices broke ground in the U.S. so far this year, while 14.7 million square feet has been removed from the market, Bloomberg reported Thursday (July 27), citing data from commercial property brokerage Jones Lang LaSalle (JLL). This would be the first net decline in data going back to 2000, and possibly ever.
“We would have a lot of confidence in saying that national office inventory has never actually declined in the past,” JLL Research Manager, U.S. Office Jacob Rowden said in the report.
The report attributes the decline to more people working from home, a trend that was strengthened by the pandemic lockdowns.
Owners of office space have been faced with not only declining demand but also rising borrowing costs, according to the report. This, in turn, has led to rising delinquencies and falling prices for properties.
However, this glut of offices has presented an opportunity for developers to turn the office space into residential dwellings, the report said. An estimated 45,000 apartments are being converted from the former office space, per a report by RentCafe.
“The last 12 to 24 months have compounded some of the existing trends to push us to the point where negative inventory, at least for a temporary period over the medium term, is becoming highly likely,” Rowden said in the report.
It was reported in February that the collapse of the American mall industry could be near, and could portend a wave of commercial real estate defaults that extends to office spaces. The already shaken industry is also facing more aggressive lenders, rising interest rates and falling property values, Bloomberg News reported Feb. 17.
With near real-time data on how that space is being used, companies can better decide whether to renew a lease and whether to consolidate space, Franco said at the time.