Office

The national office vacancy rate rose 40 bps to a record-breaking 19.6%, shattering the previous record of 19.3% set twice previously: once in 1986 driven by a five-year period of significant inventory expansion and the other in 1991 during the Savings and Loans Crisis. This surge represented the largest quarterly increase since Q1 2021, setting the latest office vacancy 280 bps higher than its pre-pandemic level.

Retail

The retail sector remained largely steady throughout 2023 as the vacancy rate stayed flat at 10.3% in Q4. Asking rents rose by 0.2% to $21.7/sqft while effective rents were up by 0.2% to $19/sqft in Q4.

Industrial (Warehouse/Distribution Center)

The industrial sector enjoyed exceptional growth over the past few years, driven in part by the continued strength of e-commerce as a share of total retail sales and the impact of manufacturing reshoring and nearshoring initiatives. Construction ramped up quickly since the beginning of the COVID-19 pandemic in response to intense demand. The annual rate peaked at 283 million sqft by mid-2023. As the market grew more in balance, construction starts slowed amid higher interest rates and cooling demand.

Summary:

1. Office vacancy at highest in history.
2. Retail rental vacancy flat.
3. Industrial /warehouse vacancy tapered off.

Despite the optimistic reports from the US government about improved employment and job opportunities, a closer look at rental property rates reveals a different reality. The office vacancy rate is currently at an all-time high, surpassing even the levels seen during the 1991 Savings and Loans Crisis.

While some might suggest that remote work has reduced the need for traditional office spaces, major US companies have been issuing “return to office” orders post-Covid. This indicates a shift in job types rather than a decrease in demand for physical offices.

The high vacancy rate is largely due to changes in employment trends, with office jobs decreasing significantly, particularly as a result of tech downsizing and outsourcing. On the other hand, warehouse jobs (such as those at Amazon and delivery services) are still experiencing growth. Furthermore, there has been an increase in part-time positions.

In summary, while high-paying full-time jobs may be decreasing, low-wage part-time jobs are on the rise, reflecting a shift towards more flexible employment arrangements and highlighting potential disparities in job opportunities within the US economy.