CBRE Research: Curtailed Construction Will Benefit US Office Market

There is relief for the U.S. office market on the long-term horizon in the form of constrained new supply, according to a new report from CBRE.

Construction completions added an average of 10.7 million sq. ft. per quarter to the U.S. office market over the past 20 years, according to CBRE Research. That new supply, coupled with reduced demand for office space, has led to a 30-year high in office vacancy in this year’s first quarter: 17.8%.

Now, higher interest rates and constrained availability of financing mean that construction activity is poised to cool, which will alleviate upward pressure on office vacancy. CBRE’s Econometric Advisors division forecasts that construction completions will slow to a quarterly average of 4 million sq. ft. from mid-2024 through 2028. That’s roughly 37% of the historical quarterly average.

“The impending construction slowdown in the office sector is similar to what the retail sector went through in the past decade,” said Manish Kashyap, CBRE Global President of Advisory & Transaction Services. “Retail construction has tapered since the Great Financial Crisis, spurring vacancies to gradually decline to a record low of 4.8% in this year’s first quarter. As a result, retail rents continue to rise. It is a multiyear shift that might foreshadow what’s in store for the office market.”

CBRE Economic Advisors, which specializes in economic analysis and forecasting, projects that U.S. office vacancy will peak between 19.3% and 21.4% in late 2024 and then gradually decline to roughly 16% by 2028.

To read the full report, click here.