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In this issue

• Will the US office vacancy rate rise in Q3 to a new record level (16.5% or higher)?
• Make a forecast with one click at the bottom of this email by 9am ET Tuesday September 12.

Will US office vacancies hit a new record?

A record-level of US office space was sitting empty last quarter, a sign of how remote work is transforming the economy. But will offices stay empty?

If they do, it could wipe half a trillion dollars off of commercial real estate valuations. And prolonged vacancies could set off a cascade of problems for cities, as the New York Times recently reported:

So what happens next? The vacancy rate is the share of office buildings with no one in them, and it’s driven by supply and demand.

Demand can rise and fall based on the broader economy; until recently Collier’s highest recorded vacancy rate was in the wake of the 2008 financial crisis. Today, though, demand is being driven by the battle over remote and hybrid work.

“The employees really gained the upper hand in the tight labor market,” said Steig Seaward, a senior director at Collier’s. “We’re seeing CEOs realizing that the employees aren’t coming back. At best maybe three days a week.” In response, companies are leasing less space, driving the vacancy rate up.

The back-to-work pushes keep coming, though. Meta’s three-days-a-week office requirement went into effect last week, and an additional 1 million US workers will face back-to-work requirements between now and the end of the year, according to the real estate firm JLL. On the other hand, survey research suggests even executives expect remote work to keep increasing.

A weaker economy usually means less office space demanded but if it means less bargaining power for workers, in this case it could mean more return-to-office policies and lower vacancies.

Supply is more straightforward: Construction has slowed since the pandemic. (Much of what’s being built now is in the suburbs.) In theory, office buildings could be converted into something else—the Times reports that 3-10% of New York offices could theoretically become apartments. Collier’s Steig is more skeptical: “It’s a nice story line but in all honesty it’s not necessarily practical,” he says, adding that converting older offices to storage or urban farming may be easier.

Commercial real estate usually moves slowly. Tenants lease for anywhere from three to 15 years, so at any given moment only a fraction of them are reconsidering their space needs. That is, unless companies get desperate and seek to renegotiate their leases.

In October, Collier’s will release its Q3 report—which they compile by combining data from a number of other providers. Will the vacancy rate rise, to set a new record (16.5% or higher)? Or, will CEOs’ back-to-office push prevail?

Forecast

Will the US office vacancy rate rise in Q3 to a new record level (16.5% or higher)?

​​Very likely (~90% chance)​

​Likely (~70%)​

​Uncertain (~50%)​

​Unlikely (~30%)​

​Very unlikely (~10%)​

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Bonus trivia: Which US city had the highest office vacancy rate in Q2 of this year? SF, LA, or DC?

(Make a forecast by clicking a link above and you'll get to answer this trivia question.)

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Or, click a link and then complete the survey. You can provide your reasoning and end with a bit of trivia.

Deadline: Make a forecast by 9am ET Tuesday September 12.

Resolution criteria: Collier's Q3 2023 Office Outlook report: 16.5% or higher will resolve to Yes. If Collier's reports 16.4% again, the Q2 level, the question will resolve No, regardless of whether they consider it a record.