Groundbreakings descend to 12-year low
October 04, 2023
- Jacob Rowden
- Since the end of 2022, the cost and availability of financing have dramatically impeded new office construction. Office groundbreakings in the third quarter declined to the lowest levels since 2010, and the overall pipeline is down 47% from year-end 2019 levels.
- Since the outset of the pandemic, first-generation product (delivered since 2015) has posted positive net absorption each quarter, and occupancy gains in new construction has averaged over 9.0 million s.f. per quarter over the past three years. Although 19 million s.f. is slated to deliver in Q4, quarterly deliveries will fall to 7.2 million s.f. per quarter in 2024 and may reach as low as 3.0 million s.f. per quarter in 2025.
- A scarcity of new high-quality space is already beginning to form and is likely to intensify in coming years: the availability of direct space in offices less than 10 years old has already declined over 5% from year-end 2022.
- As supply constraints in high-end product become more acute, not only will rental rates in new and Trophy offices begin to experience upward pressure, but landlords of Tier 2 properties may begin to see spillover demand as availability declines.