The Impending Lack of Office Space, yes! There is a Scarcity

by IS_Indust
Office Space

CoStar Group, a real estate intelligence company, predicts an upcoming shortage of office space in the U.S. despite the current challenges faced by the commercial real estate market. The estimation comes with a caveat for top-tier companies to anticipate the competition for Class A commercial space. As a considerable portion of office real estate is expected to disappear, the major players are likely to vie for premium office spaces, particularly in Class A properties.

The prediction is based on the current leasing and construction activity analysis compared to recent market history. CoStar notes that newly constructed buildings aged 0-3 years have been successful in attracting net new occupancy since the beginning of 2020. These properties have garnered over 175 million square feet of net new occupancy, indicating a demand for modern, premium office spaces.

However, the supply for such spaces is expected to decrease in the coming years. Construction has slowed dramatically, with less than 30 million square feet breaking ground in 2023, making it the lowest year for construction starts since 2011. The current supply of office space in buildings aged 0-3 years is around 200 million square feet, but it is projected to decrease to under 150 million by early 2026 and under 100 million by the middle of 2027, representing only about 1% of inventory.

CoStar emphasizes that the very type of space historically demanded by tenants, even during economic downturns, will be in short supply. Despite commercial real estate market challenges, premium office spaces are expected to experience heightened competition, leading to a shortage in the coming years.

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