Slow Office Pipeline to Boost Demand For High-Quality Buildings

According to data from CBRE, the U.S. office market—long-burdened by too much space—is suddenly facing a steep reduction in new construction, as reported by CoStar.

High borrowing costs and persistent work-from-home policies have stalled development, potentially leading to a shortage of high-quality office options that could boost occupancy in top-tier buildings.

By The Numbers

By the end of Q1, approximately 22 MSF of prime office space was under construction, expected to be completed by 2027. Notably, this total matches high-end office completions for all of 2021. 

However, only 4 MSF of top-tier office space is anticipated to be added to the national market next year, less than a quarter of pre-pandemic averages.

CBRE’s report analyzed 830 prime office buildings across 57 U.S. markets, totaling nearly 340 MSF. Top-tier properties, characterized by recent construction and extensive renovations, as well as high-quality design features, wellness standards, and amenities, represent about 8% of the national office market by square footage and just 2% by building count.

Impact on Vacancies

If the annual absorption of high-end office space remains around 12 MSF more than what’s vacated, the lack of new construction could lower the vacancy rate for prime properties to just over 8% by 2027. 

This conservative estimate suggests that continued job growth and economic improvement could bring vacancy rates back to pre-pandemic levels even sooner.

Why It Matters

As the supply of new high-quality office space dwindles, top-tier buildings are likely to see improving occupancy rates. Fewer new developments and steady demand for prime office properties could help stabilize the national office market, benefiting landlords and investors in high-end buildings.