On Friday, Federal Reserve Chair Jerome Powell and fellow governors heard from business and community leaders how the Fed's interest rate hikes and price and labor market pressures are affecting Americans.
According to the company, the office sector is facing headwinds from organizations that are now more cost-conscious with their budgets. This is in addition to the reduction in demand that has occurred over the years as a result of working from home.
The company stated in a note titled "The Black Hole of Office Occupancy" that the result has caused cumulative net absorption, which is defined as the amount of leased space less what has been vacated, to have decreased by 130 million square feet (12.1 million square meters) of office space in the United States since the COVID-19 pandemic in 2020.
"The last four years of disruption in the office market have been the worst on record," mentioned Green Street, which is situated in Newport Beach, California. "The cumulative amount of office space vacated since ’19 surpasses the amount seen during the dot-com bubble and dwarfs that of the Global Financial Crisis."
At the end of 2023, the amount of office space that was available was approximately 25 percent of the total supply, which was a record high. According to optimistic predictions, it would take five years for office occupancy in the United States to return to the levels it was at before the pandemic. This would be the case if the absorption rate of new supply was comparable to that of 2019, when the economic outlook and robust predicted employment growth allowed demand to improve.
According to the company, a realistic recovery scenario implies that approximately one percent of office-using jobs will rise over the next five years, while supply growth would be less than one percent. This would result in occupancy rates in the United States not rebounding to 2019 levels for a considerable amount of time.
Since that time, office space occupancy levels have not achieved the high levels that were seen during the dot-com era in the late 1990s. Furthermore, it took eleven years following the global financial crisis of 2007-2008 for occupancy levels to return to what they were before the crisis.
However, it is probable that this cycle will play out differently than it has in the past since it will require a great deal more new employment to generate the same amount of office demand as in the past. This is due to the fact that remote work will operate as a long-term headwind on office demand.
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