Office Space in Need of a Booster

January 05, 2022

Combination line/column chart showing unstable demand in the office sector. Chart subtitle: Due to heightened concerns surrounding the Omicron variant, the outlook for office space remains murky amid unstable demand across markets and industries. Chart description: Left Y-axis shows Completion & Net Absorption (SF x 1000) ranging from -40,000 to +30,000. Right Y-axis shows Vacancy Rate from 0% to 18%. X-axis shows quarters from 4Q19 to 3Q21. Columns for completions and net absorption by quarter: 4Q19 at 17,834 and 13, 884; 1Q20 at 12,129 and 4,189; 2Q20 at 8,802 and -21,111; 3Q20 at 11,980 and -30,510; 4Q20 at 9,266 and -27,160; 1Q21 at 12,182 and -31,314; 2Q21 at 14,539 and -7322; 3Q21 at 11,015 and -5237. Vacancy rate line has steadily risen, from 12.2% in 4Q19 to 16.8% in 3Q21. Chart Sources: CBRE-EA, Barings Real Estate Research as of September 30, 2021. End chart description.

As the Omicron variant continues to spread like wildfire across the globe, companies once again find themselves modifying plans for a return to in-person work. Although the market for U.S. office space started to show signs of stabilization during the second half of 2021, the new wave of Omicron cases has already started to impede the recovery across most industries. As a result, the office sector could potentially endure the most profound and longest lasting impact from the recent case surge among the four major core property types. Current remote work dynamics and incremental office supply are expected to exert additional upward pressure on vacancy rates, which increased during the third quarter of 2021 to 16.8%. While the emergence of virus variants and the prevalence of unvaccinated individuals may act as catalysts for permanent changes within the office sector, many companies are expected to opt for flexible work schedules in 2022 rather than leasing additional real estate. With businesses contemplating further vaccination requirements, as well as continued travel restrictions and virtual interactions, there now exists a widening gap between occupied and underutilized office space. To that point, net absorption rates, which serve to quantify the difference between leases and vacancies, have fallen by roughly 120 million square feet during the pandemic, representing the largest drop since the 2001 Technology Bubble.

Going forward, corporations and employees alike may be forced to navigate through a unique work environment on a permanent basis. While hybrid and remote working approaches will likely serve as headwinds for the demand for office space in the aggregate, institutional investors may be well-positioned to achieve portfolio alpha with long-term exposures to high-quality tenants, Class A properties, office conversions, and distressed low-occupancy buildings. As a firm, Marquette will remain focused on working with our clients to target markets with a compelling mix of talent, demographics, and tenants.

Print PDF > Office Space in Need of a Booster

 

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

Related Content

Five-line chart comparing yield on 30-year debt instrument for the United States, United Kingdon, France, Germany, and Japan, December 2021 to August 21, 2026. First data point in order listed previously: 1.9%, 1.1%, 0.9%, 0.2%, 0.7%. Most recent: 5.3%, 5.8%, 4.9%, 3.8%, 4.1%. For full dataset, please contact marquettemarketing@marquetteassociates.com.

08.24.2026

Long Weakened

The global bond market is facing renewed pressure as investors demand higher yields to hold long-dated government debt, pushing borrowing…

Column chart showing total deal size for 14 non-financial corporate bond deals of $20B or more since the start of 2025. Out of 14, only three were unrelated to AI or hyperscalers. For full dataset, please contact marquettemarketing@marquetteassociates.com.

08.17.2026

Supersize Me!

As a college football player struggling to put on mass, the “supersizing” deal at McDonald’s was hard to beat. For…

08.10.2026

The Yen is Wayward… but Investors Carry On

After reaching nearly ¥164 per dollar, its weakest level in roughly four decades, the yen had become a source of…

Combined column and line chart showing expected hikes/cuts and policy rate as of 12/31/2025 through 7/31/2025 as well as the actual policy rate for upcoming Fed meetings, 12/31/2025 through 12/9/2026. As market expectations have changed in 2026, investors' original outlook for two rate cuts were priced out in March and eventually switched to two rate hikes. For full dataset, please contact marquettemarketing@marquetteassociates.com.

08.03.2026

Hit the One in the Middle, Mr. Chairman!

In the cinematic masterpiece Rocky IV, Rocky gets dazed by his opponent, Captain Ivan Drago, and complains that he sees…

Column chart showing redemption volume for business development companies (PDCs) in billions of dollars by quarter, 1Q 2022 to 2Q 2026. Filled redemptions are shown in solid orange, but 1Q and 2Q 2026 also include stacked lighter orange for Unmet Redemptions data (-$6.5B and -$9.7B, respectively). Up to the second half of 2025, volume hovered at less than -$2B, but has since increased. For full dataset, please contact marquettemarketing@marquetteassociates.com.

07.27.2026

Liquidity Isn’t Free

The rapid growth of non-traded business development companies (BDCs), which are investment vehicles that pool investor capital to make loans…

07.24.2026

2026 Halftime Market Insights

This video is a recording of a live webinar held July 23 by Marquette’s research team analyzing the first half…

More articles

Subscribe to Research Email Alerts

Research Email Alert Subscription

Research alerts keep you updated on our latest research publications. Simply enter your contact information, choose the research alerts you would like to receive and click Subscribe. Alerts will be sent as research is published.

We respect your privacy. We will never share or sell your information.

Thank You

We appreciate your interest in Marquette Associates.

If you have questions or need further information, please contact us directly and we will respond to your inquiry within 24 hours.

Contact Us >