Shortage of new deliveries will commence in 2024

December 06, 2023
  • Jacob Rowden
  • Elena Lanning
  • The precipitous decline in construction starts that has intensified in 2023 will have more acute impacts on the U.S. office market in 2024, as quarterly deliveries will decline to just over 7 million s.f., of which more than 55% is already pre-leased.
  • Since the pandemic began, new construction has generated consistently strong demand despite broader challenges facing the U.S. office market: product developed since 2015 has generated positive net absorption in every single quarter and has averaged over 9 million s.f. of occupancy gain since 2020.
  • While the imbalance between high-end demand and supply will emerge in 2024, it is slated to intensify over the medium term. Deliveries will decline to roughly 3 million s.f. per quarter in 2025, and potentially below one million s.f. in 2026. With office developments traditionally taking at least 10 quarters from groundbreaking to delivery, even an immediate acceleration in new development starts would likely do little to alleviate near-term undersupply of new offices.
  • The lack of availability in new construction will necessitate that tenants looking to upgrade their spaces consider existing Trophy or Class A options, creating a spillover in demand that will cascade to Tier 2 assets and broader segments of the market.