A new office space demand forecast published by the NAIOP Research Foundation projects a period of negative absorption through late 2020 and early 2021, but total net absorption from Q2 2021 to Q3 2022 will exceed negative absorption from the recession, resulting in overall gains.
In addition, the forecast negative absorption is less than the negative absorption that has been reported for the last two quarters.
“Given the continued challenges facing the U.S. economy, office net absorption is forecast to be negative 18 million square feet in Q4 2020 and negative 10 million square feet in Q1 2021,” according to the forecast. “The coronavirus pandemic has led to conditions that are remarkably different from past recessions but are nonetheless challenging for the office sector.”
“Although vacancy rates have risen, there are many multiyear leases that are set to outlast the projected return to the office,” said Thomas J. Bisacquino, president and CEO of NAIOP. “Office space users face a unique dynamic presented by the pandemic, but the shift to remote work has allowed businesses to keep going in certain sectors.”
For example, October unemployment rates in the financial-activities sector (3.8%), information sector (5.8%) and professional and business services sector (6.1%) were below the U.S. national average of 6.9%.
This forecast assumes a continued rebound in real GDP for the remainder of 2020. It assumes real GDP will expand by 4% in 2021 and 3% in 2022 and that average unemployment during 2021 and 2022 will be approximately 5.5% and 4.5% respectively. Finally, the forecast assumes that inflation in both years will be 1.75%.