Future Cities

Developer Discipline Will Help Usher in the Office Recovery

Chart of the Week

January 24, 2025 2 Minute Read

Chart of the Week

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Predictably, office development has decelerated in most markets. Over the next two years, office completions are expected to exceed the previous two years’ levels in 12 markets—or 19% of the office markets CBRE EA tracks. Key outliers include some South Florida markets, namely Miami and West Palm Beach, where the office market has had strong momentum since 2020. In Miami, future deliveries are 3.9% of total inventory. Nashville deliveries are also elevated at 4.5% of inventory.

The construction slowdown is particularly evident in large, mature office markets, such as Manhattan, Seattle and Washington, D.C. Also, rising cap rates have resulted in steep discounts to replacement costs in these expensive-to-build cities, making ground-up development even less viable. Interestingly, construction is decreasing just as leasing activity is increasing. This means the 1 million sq. ft. of construction underway in Manhattan—a miniscule 0.1% of inventory—is not likely to impede the market’s recovery and would be welcome for tenants looking for state-of-the-art premium space, which is in relatively short supply.

With so many large markets facing similar circumstances, the national1 office vacancy rate is expected to decline by 60 basis points over the next two years.

1 The CBRE EA office Sum of Markets is based on 52 U.S. office markets that EA tracks.

Figure 1: Market Completions During the Past Two Years, Compared with the Next Two Years (Millions of Square Feet)

Chart showing completions over two years

Source: CBRE Econometric Advisors.

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