The U.S. office real estate market is anticipating for a shortage, according to real estate intelligence company CoStar Group. Despite the prevailing consensus of a commercial real estate downturn, CoStar advises top-tier companies to prepare for an upcoming scarcity of office space. This unexpected forecast is grounded in the current landscape of maturing debt, expiring leases, and a growing demand for Class A commercial space.
As up to one-third of office real estate faces potential elimination, major players in the market are expected to intensify their competition for premium office spaces. This demand is further fueled by the trend towards a return to pre-pandemic norms of in-office work According to CoStar’s analysis of construction and leasing data, newly built buildings between the ages of 0 and 3 are doing particularly well, drawing in over 175 million square feet of net new occupancy since the beginning of 2020.
The National Director of Office Analytics at CoStar Group, Phil Mobley, highlights that even in difficult economic times, there is a constant need for contemporary, high-end office space. However, construction has significantly slowed, with less than 30 million square feet breaking ground in 2023, marking the lowest since 2011. Buildings aged 0-3 years currently represent 2.4% of U.S. office inventory, but this figure is projected to drop below 1% by mid-2027.
While iconic building landlords are offering incentives, the future remains uncertain. Jeff Greene, a billionaire real estate investor, predicts a correction in commercial real estate, with newer buildings attracting tenants while older ones struggle. CoStar estimates that over half of leases executed before 2020 are set to expire, prompting companies to focus on space utilization amid a competitive race for premium locations. According to Mobley, now is the perfect time to take advantage of opportunities for those eyeing premium and newly constructed properties.