Under the pressure of high interest rates, the US commercial real estate market is facing a huge vacuum crisis.
According to a recent report released by Moody's, the US office vacancy rate is expected to rise from 19.8% in the first quarter of this year to 24% by 2026 due to the continued expansion of the scale of working from home.
Coupled with the impact of weak rents and lengthy lease turnaround times, at that point, the income of office building owners will drop by 8 billion to 10 billion US dollars, the commercial real estate market value will drop by as much as 250 billion US dollars, and real estate developers and lenders face bleak business prospects.
Behind these shocking numbers, more and more businesses are leaning towards more flexible, shorter office arrangements.
According to a survey by real estate agency Jones Lang LaSalle Inc., 85% of North American companies have implemented a hybrid work model, while office occupancy rates in major US cities are still around 50% of pre-pandemic levels.
Moody's said:
Many businesses feel they should maintain or even expand the scale of remote work.
If productivity remains stable, and costs can be reduced by abandoning physical office buildings, then the reason for mandatory office attendance is weakened.
Moody's research focuses on a few specific white-collar industries, including finance, information technology, real estate, and administration. Not only do these industries have a high proportion of remote work, but they also account for a major share of the US office building market.
Moody's also found that the upward trend in commercial real estate vacancy rates can be traced back to the 2008 global financial crisis, and this trend continues to accelerate. Compared with before the pandemic, the white-collar industry needed about 14% less office space.
This finding coincides with the McKinsey Global Institute's predictions.
McKinsey predicts that demand for office space in major global cities will drop by 13% by 2030, which will inevitably have a profound impact on the real estate market.
The agency further estimates that in the next few years, the global market value of office properties may shrink drastically, estimated to be between 800 billion and 1.3 trillion US dollars.
However, Moody's analysis indicates that the upward trend in the US office vacancy rate will not rise indefinitely. Over time, large amounts of vacant office space will be demolished or remodeled, such as converted into storage facilities or residences. This process will eventually stabilize the vacancy rate.
The report further predicts that the next ten years will be an important transition period for the US commercial real estate market:
Over this period of time, we will see a continuous process of adjustment: traditional inefficient office spaces will be eliminated and replaced by more flexible office environments that can adapt to new ways of working.