Curtailed construction in next five years to align office vacancies closer to demand, predicts CBRE

CBRE Econometric Advisors forecasts US office vacancy to peak in late 2024 and then gradually recede

There is relief for the U.S. office market on the long-term horizon in the form of constrained new supply, according to a new report from global commercial real estate services and investment firm CBRE.

Construction completions added an average of 10.7 million sq. ft. per quarter to the U.S. office market over the past 20 years, according to CBRE Research. That new supply, coupled with reduced demand for office space, has led to a 30-year high in office vacancy in this year’s first quarter: 17.8%.

Now, higher interest rates and constrained availability of financing mean that construction activity is poised to cool, which will alleviate upward pressure on office vacancy. CBRE’s Econometric Advisors division forecasts that construction completions will slow to a quarterly average of 4 million sq. ft. from mid-2024 through 2028. That’s roughly 37% of the historical quarterly average.

“The impending construction slowdown in the office sector is similar to what the retail sector went through in the past decade,” said Manish Kashyap, CBRE global president of Advisory & Transaction Services. “Retail construction has tapered since the Great Financial Crisis, spurring vacancies to gradually decline to a record low of 4.8% in this year’s first quarter. As a result, retail rents continue to rise. It is a multiyear shift that might foreshadow what’s in store for the office market.”

CBRE Economic Advisors, which specializes in economic analysis and forecasting, projects that U.S. office vacancies will peak between 19.3% and 21.4% in late 2024 and then gradually decline to roughly 16% by 2028.

Figure 1: Historical & Baseline Forecast U.S. Office Net Absorption, Completions & Vacancy

To read the full Limited New Supply Should Support Office Market Recovery in 2025 report, visit CBRE.