Will the U.S. office market face a space shortage?

The combination of a strong recovery in office leasing volumes, attendance rates approaching pre-pandemic norms, and substantial downsizing and inventory removals over the past five years leave the U.S. office market in surprising territory: some segments of certain markets are experiencing supply constraints.

Since the onset of the pandemic, office tenants have collectively cut 7.8% of their office footprint, and at the same time have expanded their headcounts by more than 5%, as space efficiency driven by hybrid and remote work, as well as economic defensiveness drove tenants to cut space and/or dispose of expansion space they had been holding.

As a series of groups now face more aggressive attendance mandates, including three of the largest occupiers in the U.S. (Amazon, JP Morgan and the U.S. Government) switching to five days per week of office attendance, much of the space trimming over the past five years could leave firms with a shortage of space to house employees: Amazon notably executed more than 500,000 s.f. of expansionary leases in the final months of 2024.

High-demand pockets are already showing evidence of supply constraints: new supply in New York is less than 10% vacant, and less than 1% of space in the Hudson Yards development remains available for lease.

With additional groups including WPP, Southwest Airlines, Dell, Nissan and Toyota all increasing requirements recently, and a net negative inventory environment over the foreseeable future, existing supply pressures could grow significantly over the next several years.