US Office Building Vacancy Rate at 13%... Surpasses Global Financial Crisis Level

A survey revealed that the vacancy rate of office buildings in the United States has surpassed the level during the 2008 global financial crisis.

Empire State Building, New York, USA. / Photo by Seungyoon Song

The US daily Wall Street Journal (WSJ) reported on the 24th (local time), citing real estate information company CoStar, that the vacancy rate of office buildings in the US reached 12.9% in the first quarter of this year. This is higher than the level during the financial crisis and the highest since the company began compiling data in 2000.

The decline in commercial real estate prices is considered a risk factor for the US banking sector. As vacancies increase, the appraised value of buildings falls, which may cause real estate developers to default on their debts, leading lending banks to incur losses. According to real estate analytics firm Green Street, US office building prices have dropped by about 25% since early last year.

WSJ explained that the increase in vacancy rates is bad news for banks lending on commercial real estate, citing KBW Research's findings that about 38% of loans from mid-sized US banks are secured by commercial real estate mortgages.

The commercial real estate market has periodically experienced downturns, but market analysis suggests this time is different. Due to aggressive interest rate hikes in the US, property valuations are declining, while the rise of remote work and e-commerce is reducing demand for office and retail spaces. Since the 1970s, these factors have never simultaneously impacted the market, and there are observations that building prices may find it difficult to recover to previous peak levels.

Moreover, WSJ added that as companies adopt tighter management and reduce office space, vacancies may continue to rise when existing lease terms expire.