Could more than 1B square feet of US office space become obsolete?

 Ashley Fahey Editor, The National Observer: Real Estate Edition

As much as 1.4 billion square feet of U.S. office space could become functionally obsolete by the end of the decade.

That's according to a new analysis by Cushman & Wakefield PLC (NYSE: CWK), which examined which categories of office space could become outdated in the coming years. When factoring in the national office market's natural vacancy — 13% before the pandemic — the decade could end with 330 million square feet of excessive vacant office space, according to Cushman.

Unsurprisingly, it's expected obsolete space will be largely contained within older office buildings that aren't renovated, sustainable or in desirable locations for today's office tenants.

Another analysis by CoStar Group Inc. (Nasdaq: CSGP), per a request by The Business Journals, found about 20,000 office buildings completed before 2014 are at least 25% vacant and comprise about 1.1 billion square feet, or about 13.4%, of total inventory nationally. That type of space accounts for 54.2% of the 580 million-plus square feet currently vacant nationally, signaling it's fallen out of favor with tenants making real estate decisions in the wake of pandemic-induced hybrid work trends and a rockier economy.

Abby Corbett, global head of investor insights at Cushman, said despite the growing obsolescence of some office space, there's potential opportunity for office buildings at risk of becoming irrelevant to be reimagined once the economy strengthens.

"The relationship between office employment growth and office demand is going to re-solidify and strengthen in the coming era," Corbett said. "It's going to get worse before it gets better."

While conversions into residential, medical office or labs have become a trendy solution to deal with the growing glut of office space nationally, it's a challenging design, engineering and financial feat to get those projects across the finish line.

Full story: https://tinyurl.com/4snzywhk

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