Office Vacancies Show First Post-Pandemic Annual Decline
According to CBRE's Stefan Weiss, average asking office rents, though increasing, remain at the lowest inflation-adjusted levels since the late 1980s. The vacancy rate, while still significantly above the long-term average of 12% to 14%, is improving, indicating that the office market slump caused by the rise of remote and hybrid work during the pandemic is beginning to recover.
Rents are starting to reflect this shift. The asking rent for office space, excluding concessions, increased 1.7% year-over-year to $32.47 per square foot annually in Q3, up from $31.92, Weiss noted. Despite this increase, inflation-adjusted rents remain near historic lows dating back to about 1988.
“Users of prime space are seeing the market is tighter but it’s still a tenant-favorable market for anything outside of that prime product,”
Weiss highlighted that while most corporate costs are rising faster than rents, the market still favors tenants, particularly outside top-tier buildings.
Signs of stabilizing demand are emerging, with the return-to-office movement and key sectors like financial services and technology driving requests for larger office spaces. Two years ago, the average space per office employee reached a low of 146 square feet but has since slightly increased to 149 square feet.
Author's summary: The office market shows early recovery signs as vacancy rates improve and demand stabilizes, although rents remain near historic lows outside premium spaces.