Moody’s Analytics noted in a recent study that that physical office vacancies hit a record-breaking 19.6 percent in the 2023 fourth quarter. Previous highs were centered around the conclusion of five years of inventory expansion (1986) and during the savings and loans crisis (1991).
This surge, Moody’s noted, represents the largest quarterly increase since Q1 2021.
New construction added nearly 24.5 million square feet of office space since beginning of 2023, well below initial estimates and the lowest since 2012. With annual inventory expansion currently sitting at 0.54 percent, new Class A properties that offer flexible or smaller configurations are particularly attractive to tenants that keep the physical office footprint for branding, purposeful gathering, training and collaboration purposes. Suburban offices also fared better due to their proximity to local communities and, in some cases, shorter commute times.
Moody’s contends that, despite a consensus prediction of a macroeconomic “soft” landing – along with positive labor market estimates – the permanence of dynamic hybrid models has essentially muted office demand, making the year of 2023 the most downbeat since the Great Financial Crisis. Net absorption stayed consistently negative since July 2023 and finished Q4 at -12.97 million square feet, driving the end-of-year total to -18.32 million square feet.
For additional date, check out the report here.