Office spaces in the United States are now emptier than at any point in over four decades, according to a report.
At least 19.6% of all office spaces in major cities in the U.S. remained vacant in the last quarter of 2023, Moody's Analytics reported in its Q4 2023 Preliminary Trend announcement. In comparison, the office vacancy rate in the last quarter of 2022 was 18.8%.
It is the highest office vacancy rate recorded in the U.S. so far and is the worst reported since 1979, when Moody's began tracking the statistic. Prior to last quarter's numbers, the record for office vacancy was 19.3%, which was hit twice before-the first in 1986 when inventory expanded and then in 1991 during the savings and loans crisis.
"Despite the increasingly optimistic consensus on the likelihood of a macroeconomic soft landing along with positive news from the labor market, the permanence of dynamic hybrid models has effectively muted office demand, making the year of 2023 the most downbeat since the Great Financial Crisis (GFC)," Moody's strategists wrote in the report.
Of all states in the country, Texas was particularly hard hit. Three of its cities-specifically Austin, Dallas, and Houston-claimed the top three spots among the major cities with the highest office vacancy rates.
What Led to the Rising Office Vacancy Rate?
The surplus of office space is mainly due to a massive shift in the employment sector. Following the lockdowns during the COVID-19 pandemic, many offices shifted away from the traditional five-day-a-week office life to a hybrid or remote setup that allowed employees to work from the comforts of their homes.
In addition, there are concerns over commercial real estate debt, which is estimated to be around $1.5 trillion.
Moody's is not the only firm to point to a problem in the commercial real estate market. A Back to Work Barometer from Kastle showed an occupancy rate of just 23.9% in the week of Jan. 1, 2024. Those numbers fell from 45z5 the week prior and 51% earlier in December.
The forecast isn't much better. Capital Economics forecasted that prices for office buildings may plunge another 20%. The research firm added that it may take decades for values to climb back to its peak.
