Comparing the current state of the office market to that of past recessions
With the ubiquity of remote work induced by COVID-19, companies are looking to downsize their offices. And now that a recession is looking more and more like a reality, experts are comparing the current state of the market with past financial crises to try to figure out exactly how much office owners will suffer. Unfortunately, looking at past financial downturns doesn’t paint a pretty picture, as each of the previous three recessions has caused office occupancy levels to plummet.
The percentage of US office space currently leased is significantly lower than it was at the start of the 2001 recession (or subprime mortgage crisis). Although there is continued demand for office space along the Sunbelt, vacancy rates in several major cities are at their highest levels in years. Things might look brighter compared to the 2008 recession as homeowners are experiencing fewer defaults now, but that optimism appears to be short-lived. Analysts and lenders agree that defaults will soon follow. Now that the Federal Reserve has raised interest rates, there is speculation that mass layoffs and business closures could occur
Pressure from rising interest rates and falling demand is already driving down property values in many office buildings, and a recession will only make matters worse. Most office leases last between five and ten years, as they expire vacancy rates will likely rise with them if the economy is down. In this case, office owners may need to get creative with how they use their space or what types of tenants they can sign.