The U.S. office building market will take years to recover from the impact of the pandemic, a new report warns.
Office building occupancies across the country are forecast to drop by more than 120 million square feet in 2020 and 2021 as covid-19 puts the economy in recession and eliminates millions of jobs, according to a new report by Cushman & Wakefield.
The commercial real estate firm's new forecast of worldwide office sector conditions warns that a rebound from the pandemic won't happen overnight.
The report predicts that the U.S. office sector will lose about 145 million square feet of office occupancy in 2020 and 2021 as the result of the economy losing a net 1.7 million office jobs. As of the second quarter, the office sector has already lost 23.1 million square feet of occupied space nationwide, with negative absorption continuing for at least another 18 months.
"The hit to demand for office space -- measured by the level of net absorption -- is approximately 20% more severe than what occurred during the global financial crisis period of 2008 and 2009," Cushman & Wakefield analysts say. "Office leasing fundamentals will be significantly damaged in the near term."
Nationwide net office leasing won't return to pre-pandemic levels until 2023, the forecast concludes. And building rents aren't expected to fully recover until 2024 or later.
Along with the reduced demand from the current recession, office landlords are concerned about a greater shift toward remote working.
"Over the 2022-2030 period, under the base-line scenario, we expect office demand to be 15.8% lower than it otherwise would be due to a structural increase in work from home, despite holding density at pre-covid-19 levels," Cushman & Wakefield said. "We conclude that the structural impacts of work-from-home trends will be offset by factors such as economic growth, population growth and office-using penetration, which means demand for office will continue to grow over the 10-year forecast horizon."
Currently only about 40% of Dallas-Fort Worth office workers have returned to the workplace, according to recent studies. And office leasing in North Texas has slowed dramatically this year as the pandemic took hold.
During the first half of 2020, net office leasing in the Dallas-Fort Worth area fell by 1.8 million square feet -- the biggest decline in the market since the 2007-2009 recession.
Local office rents are forecast to decline in the year ahead, and landlords are already offering concessions to attract tenants.
At midyear, almost 5 million square feet of additional office space was under construction in the area.