NAIOP Research Foundation News
May 29, 2020
WASHINGTON, D.C. – A new report published by the NAIOP Research Foundation projects positive absorption of office space beginning in the third quarter of 2021.
“The virus’ macroeconomic impact is now quite visible in U.S. data,” according to Q2 2020 NAIOP Office Space Demand Forecast. “Since March 2020, COVID-19 has markedly altered the U.S. macroeconomic landscape as states issued stay-at-home orders designed to limit the spread of the disease Workers across multiple industries are staying home, and it is unclear how or when they will return their workplaces. Due to the turmoil in the national economy, rising unemployment and continued uncertainty about future work arrangements, the U.S. office market absorption is forecast to decline into negative territory through the second quarter of 2021.”
Through that time, macroeconomic forces will continue to put downward pressure on office vacancy rates.
The forecast predicts the deepest negative absorption rates (meaning more space is released to the market than is leased or purchased) of approximately 16% t in the third quarter of 2020, and a gradual easing roughly negative 7% later in 2020 and eventually to a positive 1.6% in the third quarter of 2021.
Since office space demand is highly correlated with the state of the economy, authors Hany Guirguis, Ph.D., and Tim Savage, Ph.D., updated the economic assumptions used to forecast office absorption earlier this year. They predicted U.S. Gross Domestic Product (GDP) to contract by 2.5% in Q1 2020 and to contract further by 6.25% in Q2. A gradual return to economic expansion is predicted to occur with forecasted growth of 1% in Q3 2020 and 1.25% in Q4 2020. Average unemployment during 2020 and 2021 is estimated to be 7%, with average inflation around 1%.
“While U.S. states begin the process of a staged re-opening, employees will arguably put a premium on workplace cleanliness. They will also put a premium on personal space, which may contribute to increased demand for office space. Many large organizations have begun to consider a “hub-and-spoke” model for work arrangements, enhanced by technology that allows for the economic gains from agglomeration while recognizing the challenges created by the pandemic,” Savage said.
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Kathryn Hamilton, NAIOP vice president for marketing and communications
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