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High office vacancy rates in markets nationwide mask the fact that a disproportionate amount of empty office space is concentrated in a relatively small percentage of buildings, according to a report by JLL.
Specifically, 60% of vacancy is concentrated in 10% of office buildings, and over 90% of vacancy is concentrated in 30% of office buildings, the company said. Fully 40% of office buildings have no vacant space at all, the real estate services giant reports.
JLL characterizes the properties with the highest individual vacancies as the “older-vintage commodity segment of the office market,” with offices built in the 1980s and 1990s particularly impacted, totaling more than half of the new vacancies that have occurred since 2020, despite representing only about 40% of total U.S. office inventory.
Owning a building of an older vintage doesn't automatically mean owning a loser in terms of leasing, however. Many buildings developed in the last decades of the 20th century are holding their own, JLL said.
For example, among 1990s-vintage offices, 49% have seen vacancy rates increase since 2019, while 29% experienced no change and 22% actually enjoyed a vacancy decline in the last three years.
Still, on average, it is better to have a newer building. Vacancies in newer office buildings, those completed during the 2010s, actually dropped 5% compared with the end of 2019.
Office leasing activity, which has recovered somewhat, is still well below recent historical averages, JLL reported separately in its Q1 2023 office report, and thus unlikely to buoy the fortunes of more beleaguered office properties.
Between 2016 and 2019, office leasing activity nationwide totaled an average of nearly 60M SF per quarter. No quarter since the beginning of 2020 has seen anything close to that total, with leasing reaching a recent peak of 47.8M SF in Q2 2022. In 1Q 2023, the total dropped to 38.1M SF.
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