It’s not just your imagination. Offices are a lot emptier these days.
Moody’s Analytics, as reported by the Wall Street Journal, says 19.6% of the office space across the United States is now empty—the highest level since 1979, when Moody’s began tracking the statistic. The number is up from 18.8% a year ago.
Prior to now, the highest the vacancy rate had hit was 19.3% in both 1986 and 1991.
While much of the issue is tied to an increasing number of remote workers, overbuilding in the 1980s and ’90s is also a key factor. Moody’s says the majority of the unleased space is in older buildings from that period and earlier.
“The overall outlook for commercial real estate in 2024 is muted,” Ermengarde Jabir, senior economist with Moody’s Analytics, told Fortune earlier this month. “Across all sectors, there will be a continued recalibration of sorts [including office, multifamily, industrial, and retail properties]…Office will continue to face the most strain in 2024.”
Texas has been particularly hard hit, with Houston, Dallas, and Austin claiming the top three spots among major cities with the highest vacancy rates.
Many companies were already in the process of downsizing their office footprint before the pandemic, shifting toward open floor space plans that fit more employees into a smaller space.
Moody’s isn’t the only company pointing to the occupancy problem. The most recent Back to Work Barometer from Kastle (for the week of Jan. 1, 2024) showed an occupancy rate of just 23.9% (though that could be due to holiday vacations). That was down from 45% the week prior and an average of 51% earlier in December.
Workers have been hesitant to begin commuting back to work, despite a strong push by CEOs. Many employees say they will return to work if companies offer incentives, but most corporations have been reticent to do so.
Executives had argued that by having employees back in the office, productivity would increase. However, increasing evidence is showing that does not appear to be the case.
The outlook for the future isn’t much better for commercial real estate. Stijn Van Nieuwerburgh, a professor of real estate and finance at Columbia Business School, was particularly pessimistic about the office market late last year, saying he didn’t expect it to improve for years.
“It could easily take several years for the office market to stabilize, which is why I’ve referred to all this as a train wreck in slow motion,” he said.