Real estate firm Jones Lang LaSalle recently reported that the amount of office space in the U.S. may decline this year for the first time in history! As depicted below, only 5 million square feet of new office construction commenced this year whereas 14.7 million square feet have been removed.
Of course, the office market has always been cyclical, but the current period is unique. While there was a high level of vacancy during the Great Depression of the 1930s, there were still additions to the office stock with the opening of the Merchandise Mart in Chicago (1930), the Empire State Building (1931), and Rockefeller Center. (1932)
Future demand for office space is exceedingly difficult to forecast because of uncertainty regarding the “return to the office.” While many companies are imposing more stringent work schedules, some employees are pushing back and non-compliance remains high. A recent study by McKinsey suggested that demand for office space will settle somewhere between 12% and 30% below the pre-pandemic level. (Obviously, a very large range!) The most widely recommended solution is for urban planners to abandon concentrated office districts in favor of “live, work, play” areas. This process has already begun as roughly 45,000 apartment units are currently being converted from former office space according to RentCafe.