U.S. Office Real Estate Market Braces for Shortage of Premium Spaces – BNN Breaking

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U.S. Office Real Estate Market Braces for Shortage of Premium Spaces

The U.S. office real estate market is staring at a potential scarcity of premium office spaces, more so for the Class A commercial spaces, despite a larger market grappling with maturing debt and a high volume of expiring leases. As per the forecasts of CoStar Group, a real estate intelligence firm, a significant amount of office real estate is projected to vanish – potentially up to a third – thereby intensifying the competition for top-tier office spaces, especially with companies reverting to in-office operations nearing pre-pandemic levels.

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High Demand for New Constructions

Newly constructed buildings aged 0-3 years are turning out to be the most coveted, having attracted over 175 million square feet of net new occupancy since early 2020. This trend seems set to continue, with the supply of such modern, premium office spaces failing to keep pace with the demand. Construction starts have taken a hit, with 2023 marking the lowest year for construction starts since 2011.

Decreasing Supply in Future Years

By early 2026, office space in buildings aged 0-3 years is projected to drop below 150 million square feet, and by mid-2027, it may fall under 100 million square feet, representing only about 1% of the inventory. Although there may be news of trophy buildings selling at discounted values, this situation also presents an opportunity for tenants to secure favorable lease deals, particularly in the premium space sector.

Global Outlook

Real estate services titan, Leechiu Property Consultants, anticipates a gradual reduction in office vacancies in the coming year, driven by resilient demand from outsourcing firms and Philippine Offshore Gaming Operators (Pogo) that have returned to Manila Bay. The Philippine office market has outperformed expectations this year, with overall office demand increasing by 8 percent from 2022, reducing the overall vacancy rate by 19 percent to 18 percent. IT and business process outsourcing firms have been the primary demand driver this year, accounting for 42 percent, followed by Pogos at 17 percent.

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