Office Vacancy Rates Could Rise to Enarly 25% by 2026: Report

Chicago Economy Still Recovering From Pandemic Slowdown And Wave Of Crime, Hopes DNC Selection Will Spur Economic Activity — (Photo : Photo by Scott Olson/Getty Images) A sign advertises vacant retail space for lease in the Loop on April 20, 2023 in Chicago, Illinois. Chicago's downtown is littered with vacant retail space as it continues to struggle after office workers who fled downtown during the pandemic have been slow to return. The city has also struggled to deal with a spate of mob violence that has plagued the business district for the past couple of years, which last weekend resulted in two people shot, a young couple visiting the city badly beaten and robbed, and several vehicles damaged.

Nearly a quarter of all office spaces in the United States are likely to be vacant by 2026 as more companies adopt a remote working model.

In early 2026, office vacancy rates are expected to peak at 24% from the current 19.8%. For landlords of office spaces, this could mean a loss of revenue of between $8 billion and $10 billion. This is combined with the impact of lower rents and lease turnovers, according to a report from Moody's Analytics.

The losses could, in turn, cause "property value destruction" of about a quarter-trillion dollars, Bloomberg noted, citing Todd Metcalfe, Moody's associate director of commercial real estate (CRE) forecasting, and Tom LaSalvia, Moody's head of CRE economics.

A separate report from real estate services company CRBE expects office vacancy rates to top out at 19.9% in 2025---a level unseen in the US over the last three decades. The company added that office vacancy rates are unlikely to go below the 18% range until 2028.

Why Is Office Vacancy Rising

Moody's attributes the rise in office vacancy rate to the recent shift to hybrid or remote working models, which led employers to ditch square footage or downgrade their leases from multi-year to shorter terms. The report also noted that some employers are switching to flexible co-working arrangements over longer lease terms.

However, it should be noted that Moody's focused its study on major industry groupings that make up the majority of office demand and have the highest rates of work-from-home models. These industries include Information, Finance, and Insurance; Real Estate; Rental, and Leasing (FIRE), Professional, Scientific; and Management, Administrative, and Waste Management Services.

Moody's utilized employment data from the US Bureau of Labor Statistics (BLS) to determine the "overall impact of office demand from additional levels of work-from-home arrangements."

Despite the recent increase in office vacancy, Moody's authors said the rate will eventually plateau as more spaces are torn down or converted to other uses such as residential property or warehouses.

"Right-sizing will continue over the next decade as the market shakes out less efficient space for flexible floorplans that support our relatively new working habits," the authors wrote.