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A new second-quarter report shows that all sectors of commercial real estate are under pressure due to ongoing economic uncertainty. This has reduced confidence among both households and businesses. However, office buildings are struggling more than other property types, according to BisNow.
According to Moody’s Analytics, office vacancy across the U.S. reached 20.6% last quarter — up from 17% at the start of the pandemic five years ago. The rate rose 0.2% from the previous quarter and 0.5% from the same time last year.
Efforts to bring employees back to the office haven’t been enough to slow this trend. Moody’s also warned that more office space may open up in the next year or two, as the federal government is expected to give up some of its leases. Washington, D.C., has already lost 850,000 square feet of federal office space this year, according to CBRE.
On a more positive note, Moody’s expects the overall economy to avoid a recession. Still, the office market faces serious risks if economic conditions worsen again.
Office rent prices saw only a small increase last quarter, rising by 8 cents to an average of $28.45 per square foot.
Some metro areas performed better than others. Birmingham (Ala.), Palm Beach and Miami (Fla.), Wichita (KS), and Columbia (SC) saw falling vacancy rates and stronger rent growth. In contrast, cities like Nashville, Denver, Seattle, Portland (OR), and San Jose (Calif.) experienced falling rents and higher vacancy rates.
Other property types also showed signs of strain. Retail vacancy rose slightly to 10.5%, and industrial space saw an increase to 7.5%. Apartment vacancy remained steady at 6.5%, with average rents rising 12 cents to $1,832 per month. Retail rents edged up by 2 cents to $19.27 per square foot, while industrial rents stayed flat at $7.63.
