Demand for office space has slumped further, with vacancies reaching at least 20-year highs in the US and London, as people continue to work from home despite companies’ attempts to get staff back in the office after the COVID-19 pandemic.
Vacancy rates have risen to fresh highs and investment in offices fell sharply in the third quarter this year compared with the same period in 2022 in London, New York and San Francisco, according to preliminary data from CoStar, a research company focused on commercial real estate.
Vacancies in San Francisco offices hit a two-decade high and reached a 20 per cent rate in the third quarter – up from 6.3 per cent at the onset of the pandemic. The Californian tech hub only generated £454 million ($865 million) worth of investment in office space in the period, less than a third of its pre-pandemic average.
Investment in London rebounded slightly to £2 billion in the third quarter thanks to a flurry of deals in the City fuelled by appetite for green, modern and newly refurbished offices in central London which are in short supply. However, it remains far below its pre-pandemic levels and more than a fifth lower year on year.
The tech and media sectors historically boosted London’s office take up, but companies in those industries are shedding space as they experience slower growth, said Mr Gardiner. London’s vacancy rate hit 9 per cent in the third quarter, the highest since CoStar started recording the data in 2003.
The picture in New York was similarly grim in the third quarter, according to CoStar data. Investment in the city’s offices fell by 60 per cent on the previous quarter while its vacancy rate remained at 13.4 per cent, hovering near a two-decade high.
In a positive sign for the commercial real estate sector, leasing showed signs of renewed activity in the third quarter. Large deals in London’s City and West End drove a 19 per cent quarterly jump in leasing activity in the UK. In the US, leasing activity rose by 13 per cent overall despite falling in San Francisco.
