Snapshots

Lack of new development intensifying through year-end

January 23, 2024

Contributors:

The challenging capital-raising environment for the office sector is intensifying a slowdown in new development, with Q4 groundbreakings falling to just 1.2 million s.f., the lowest quarterly total in over 20 years of recorded data.

While activity in the first half of the year was enough to push 2023 groundbreakings above 2009 and 2010 totals, the deceleration through year-end caused second half groundbreakings to fall more than 15% below the pace of 2009, the lowest year on record.

Furthering the slowdown in new supply is the fact that groundbreakings are increasingly consisting predominantly of fully pre-committed projects or continuations of multi-phased developments. Just over 10% of groundbreakings in the second half of the year were true speculative developments.

Speculative projects that are moving forward tend to be in high-growth pockets of larger markets: the largest groundbreaking of 2023 was LA’s Century City Center at 1950 Avenue of the Stars in January, within the Century City submarket which has absorbed a significant share of high-end demand since the pandemic.

Lack of new development is expected to persist in the near future as core investors continue to prioritize other property types and comes at a time when the U.S. is removing record amounts of office inventory for conversions and redevelopments. With the pace of inventory removals over the past 24 months, the U.S. would need to see roughly 5-6 million s.f. of quarterly groundbreakings to counterbalance supply removal.

Conversions are helping offset the rise in vacancy

Conversions are mitigating the rise in vacancy

Office demand continues steady path of recovery

Office requirements trending upwards for four consecutive quarters

Class of 2023 graduates gravitated to gateway markets

Class of 2023 graduates