Office vacancies in the United States could soar past the 20% mark and remain there for years, an expert forecasted.
The forecast was made by Thomas LaSalvia, the head of commercial real estate economics at Moody's, while speaking to Yahoo Finance. During the interview, LaSalvia noted that the U.S. office vacancy rate is currently "at a record high" and attributes this to office owners not generating enough income to "kick the can" until interest rates fall and they are able to refinance.
"Currently, we're sitting at 19.8% vacant at the National level. Now this is a record high. The previous record was set in the late '80s, early '90s, which was a combination of a run up in new supply, along with the savings and loan crisis. That rate hit 19.3%, 19.8%," he said.
"Are we going to continue to see more and more stress for rents and occupancy levels? Yeah. In fact, I think effective rents, so including concessions, they're going to likely come down a bit more. The vacancy rate is likely to peak above 20% and probably sit there for a few years," LaSalvia added.
US Office Vacancy
The national office vacancy rate rose to a record-breaking 19.8% this month, up from a previous record of 19.6% the prior quarter, according to a preliminary trend report by financial services firm Moody's Analytics that was published on Apr. 1.
The rate has now surpassed the historic peak of 19.3%, which occurred twice-the first in 1986 during a surge of supply with high construction levels and the second time in 1991 as a result of a decade of construction and economic uncertainty.
The surplus of office space is mainly due to the massive shift in how employees show up for their jobs as a result of the COVID-19 pandemic. Before the lockdowns, many workers had the traditional five-day-a-week office life. However, the pandemic forced many businesses to adopt a remote working or hybrid model, allowing employees to work from the comfort of their homes.
In comparison, the average office vacancy rate before the COVID-19 pandemic was around 16.8%.
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