The national office market absorbed 6.6 million square feet during the second and third quarters of 2022, but the vacancy rate continued its climb to 17.1%, the highest level since the third quarter of 1993, according to the NAIOP Office Space Demand Forecast for Q4 2022, recently published by the NAIOP Research Foundation.

The completion of new office space has outpaced absorption. A deeper look into the numbers reveals an appetite specifically for high-quality office buildings, which may support leasing activity in newly completed buildings despite continued weakness across the office sector. This flight to quality is most likely driven by tenant preferences for flexibility and the desire to attract and retain talent.

Leading economic indicators and an inverted yield curve point to growing risks of a recession in 2023. Occupiers are growing more cautious, opting to sublease space and choosing smaller footprints when leases come up for renewal. 

Given these trends and concerns about a potential recession in 2023, net office space absorption in the fourth quarter of 2022 is forecast to be 7.1 million square feet, with absorption in 2023 forecast to slow to 8.1 million square feet for the entire year. Moving forward, the forecast projects that absorption in the first three quarters of 2024 will total 13.3 million square feet.

“A full return from remote working seems unlikely, but the office market will continue to adapt and evolve as new work patterns are established and the economy stabilizes,” said Marc Selvitelli, president and CEO of NAIOP.