Future of Office Space Unclear As Vacancy Hits Record

• The future of the traditional office space is unclear, the National Association of Realtors said.
• The office vacancy rate rose to a record high of 12.9% in the first quarter from 12% a year ago.
• But many universities have recently shown interest in leasing office spaces, NAR said.

Office spaces continue to struggle as work-from-home trends persist, according to a report from the National Association of Realtors. 

The office vacancy rate rose to a record high of 12.9% in the first quarter from 12% a year ago, representing 72.9 million more square feet available to lease. 

“The future of the traditional office space is unclear due to the ongoing impact of COVID-19, with many businesses adopting hybrid work arrangements that allow for a mix of in-person and remote work,” NAR wrote in the report that was released Friday.

Class A offices — high-value properties that often have above-average rent — had a vacancy rate of 17.9%. Houston, Dallas-Fort Worth, and San Francisco, led the office vacancy rise.

The sector’s concerning conditions prompted one hedge fund manager to propose demolishing the properties, as converting them to apartments would not be feasible. 

But at the same time, some regions saw improvement. San Jose, Atlanta, and Miami had the highest net absorption, with 1 million more square feet leased than left vacant over the course of a year. 

NAR also reported that a number of universities are considering leasing offices spaces as a way to bring students back into classrooms.

Other areas of commercial real estate had lower vacancy rates, especially in retail and industrial properties. That’s as consumer demand remains strong, while the need for storage space hasn’t eased.

Meanwhile, the multifamily housing sector saw vacancy increase as well, rising to 6.7% from last year’s 5%. This has led to a drop in rent growth, but it remains at normal levels. The sector is forecast to perform better in the future, in part due to current strength in the job market.

NAR’s report also shows that real-estate lending picked up in April, after seeing minimal change during March’s banking turmoil. This may help ease concerns of a tight credit crunch that was predicted to tarnish the market.