Office vacancy rates hit a record high in New York and rose nationwide as tenants cut back on space they don't need because many employees are working at home.
- New York City office vacancy rates broke records, rising to 16.1% in the first quarter of 2023.
- Nationwide, office vacancy rates sit at 16.4%.
- New York and Houston are looking for ways to convert office spaces into residential ones, while one nonprofit in Chicago aims to establish urban farms in unused offices.
In New York City, the office vacancy rate rose to a record 16.1% in the first quarter, representing more than 76 million square feet. according to a report by commercial real estate firm JLL. Part of that uptick was due to the completion of new office spaces, as companies hesitate to sign leases, the report said.
That vacancy rate means about 84% of available space is leased. It doesn't mean it's being used. New York's actual office occupancy rate is about 49%, according to Kastle Systems, which tracks card swipes through its security systems. As office leases, which typically run 10 years or more, expire, companies are reassessing their space needs.
The first quarter of the year was the lowest in leasing activity since the second quarter of 2021. In New York, thanks to the prospect of rising interest rates and instability in the banking sector.
New York has been pushing for ways to convert office spaces into residential buildings, as are officials in Houston and other cities. One nonprofit in Chicago is floating ways for unused office space to be converted into high-rise urban farms growing crops like tomatoes, basil and cucumbers.
A different report analyzing subleases available for commercial real estate found that the first quarter of 2023 brought new records. More than 22 million square feet of office space was available for sublet, topping the 21.16 million square feet record set in July of 2021.
New York City isn’t the only place seeing that trend and it's not the lowest when it comes to office usage. In San Jose, just 37% of office space is being used, according to Kastle. In San Francisco, it's 41.6%. The San Francisco bay area has some of the lowest office usage numbers because the tech industry is easily adaptable to working from home. Tech companies also have been cutting jobs.
Over the last three years it's been "piling up and up and up," Phil Mobley, national director of office analytics at CoStar, told Axios. "There's a strong likelihood that much of that is going to convert into vacancy when the original lease term expires."
In February, Google said it expected to incur $500 million in costs over the first quarter of the year in an attempt to reduce its office space footprint, much of which will be in the Bay Area. The availability of office space in Silicon Valley has skyrocketed, as it has in other cities like Houston, which has 22.2% vacancy rate, Dallas, with a 20.9% vacancy rate and Chicago with a 19.6% vacancy rate, according to data from CoStar obtained by Axios.
Across the U.S., office vacancy rates averaged 16.9% at the end of the first quarter, up from the 12.4% average vacancy rate in the first quarter of 2020.