The road ahead for the U.S. office sector is expected to include many twists and turns — including a worse contraction in leasing than during the Great Recession — until the asset class is finally restored to its equilibrium sometime in 2022, a new report from commercial development association NAIOP says.
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The organization forecasts office will suffer 18M SF of nationwide negative net absorption in the fourth quarter of this year and negative 10M SF in the first quarter of 2021. That is a slight improvement from the most recent quarters; there was 50.7M SF of negative net absorption in the first three quarters of 2020, according to CBRE. Combined with NAIOP's new forecast, this contraction would be worse than the wake of the global financial crisis in 2008.
“The coronavirus pandemic has led to conditions that are remarkably different from past recessions but are nonetheless challenging for the office sector,” NAOIP wrote in its new report.
On a more positive note, the study published by the NAIOP Research Foundation predicts total positive net absorption during the period running from the second quarter of 2021 to the third quarter of 2022 will exceed negative absorption from the pandemic-induced recession, leading to quick gains.
Unlike retailers that have tenants quickly closing down or facing an inability or unwillingness to pay, office assets benefit from multiyear leases that are expected to last until the office sector returns to normal in 2022.
NAOIP also points to stability in the financial activities, information and professional business services sectors with evidence available showing office tenants are relatively more stable financially.
The organization notes that all of the above-referenced white-collar professions had October unemployment rates in the 3.8% to 6.1% range, well below the national average of 6.9%.
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