By Ashley Fahey – Editor, The National Observer: Real Estate Edition, The Business Journals
Early estimates of third-quarter market data suggest a key metric of the national office market may have held steady in the most recent three-month period, a glimmer of hope for a commercial real estate sector that's been ravaged since the pandemic.
But it's too soon to declare victory.
Preliminary third quarter data by Moody's Analytics Inc. found the office vacancy rate nationally among markets it tracks was 20.1%. That's the same rate it was the prior quarter, when it hit an all-time record high by Moody's measurements, and ends a three-quarter streak of successive new record high vacancy.
But while a vacancy rate that held steady over the course of two quarters could suggest the broader office-market economy is beginning to stabilize, one quarter of data isn't enough to say definitively the market has hit bottom.
Matt Reidy, director of commercial real estate economics at Moody's, said it's likely the national office market is still to see a little bit of upward vacancy over time, given how lengthy office leases are.
Even though the Covid-19 pandemic began more than four years ago, which dramatically upended the role of the office, many companies still haven't fully settled out their permanent post-pandemic real estate needs — although more CEOs are requiring returns.
"It takes a long time for office vacancies to play out because leases are longer in nature," Reidy said. "Leases signed before the pandemic are either just coming due or may not be up for renewal for several more years. It’s going to be a slow drip, drip, drip on the vacancy side."
A similar story is playing out in some local markets, too. Greater Boston, for example, posted a decline in its office-vacancy rate in the third quarter for the first time since the pandemic, the Boston Business Journal reported. But Matt Daniels, New England brokerage lead, told the paper he's "not calling bottom yet.”
Still, there's been some renewed optimism for the office market in recent weeks, as the Federal Reserve last month lowered the target range for the federal funds rate by half a percentage point and Amazon.com Inc. (Nasdaq: AMZN) said it would require its employees to be in the office five days a week in 2025.
It's spurred questions about whether a broader shift away from even hybrid work could occur, prompting — once again — demand for office space.
But at the current time, it's still too soon for most office-market watchers to say whether such a storyline will play out.
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