Labor/Employment

Remote work has caused a “black hole” in U.S. office occupancy, knocking demand significantly below pre-pandemic levels and vacancy rates to historic lows, with a recovery to prior usage unlikely for years, said real estate analysis firm Green Street, Reuters reported. In addition to the decline in demand due to working from home, the office sector also faces headwinds from companies that are now more cost-conscious with their budgets, the firm said. The result has caused cumulative net absorption — the amount of leased space less what has been vacated — to have declined by 130 million square feet of U.S. office space since the 2020 COVID-19 pandemic, the firm said in a note called “The Black Hole of Office Occupancy.” “The last four years of disruption in the office market have been the worst on record,” said Newport Beach, Calif.-based Green Street. “The cumulative amount of office space vacated since [2019] surpasses the amount seen during the dot-com bubble and dwarfs that of the Global Financial Crisis.” Available office space was about 25% of existing supply at the end of 2023, both historic highs. For U.S. office occupancy to reach pre-pandemic levels it would take five years based on ambitious assumptions, such as an absorption rate of new supply on par with 2019 when the economic outlook and strong expected job growth made demand better. A realistic recovery scenario suggests about 1% office-using job growth and less than 1% supply growth over the next five years would result in U.S. occupancy rates not recovering to 2019 levels for a long while, the firm said.