According to the Wall Street Journal, the U.S. office market faces rising vacancy rates, abundant sublease space, and increasing defaults. Despite these challenges, office rents remain resilient, as landlords are reluctant to lower prices due to the potential impact on property values and loan covenants. Landlords are offering generous concessions to new tenants, such as expensive build-outs and extended rent-free periods, to justify the elevated rents. As David Bitner, head of global research for Newmark Group, explained:
“Landlords who cut rents significantly to fill empty space ‘would significantly reduce the appraised values of their buildings.'”
However, the market’s future remains uncertain, with businesses occupying significantly less space than before the 2020 recession and further negative absorption expected. As pre-pandemic leases expire, companies with hybrid work strategies may reduce their office space requirements, putting downward pressure on the market.
