Moody's Analytics Predicts US Office Vacancy Rate Hitting Historic Highs in 2021
A new report from Moody's Analytics shows retail property growth will fare worse than office properties, while industrial and multifamily properties are expected to fare better.
As COVID-19 continues to wreak havoc on all aspects of American life, that new reality is also playing out in the world of the office property sector.
According to an Aug. 17 report from Moody’s Analytics, the office property sector had already been experiencing “downward pressure on the usage intensity of office space even before the COVID-19 crisis.” But, the report says, a country-wide shift towards individuals working remote because of the pandemic is expected to hit the office property sector “particularly hard in the coming years.”
The office sector—due in large part to the coronavirus—is also expected to incur stress in effective rents. The report says effective rents will fall 10.4% nationally this year and as much as 21% in New York and other larger markets.
Victor Calanog, head of commercial real estate economics at New York City-based Moody’s Analytics, said in a release that there are still some unanswered questions.
“Many companies continue to push back returning to the office, with some already planning to telecommute in 2021,” Calanog said. “Whether the increased availability of remote working infrastructure will have long-term effects on office demand remains to be seen. However, the long-term nature of office leases means that it may take some time for vacancy rates to reflect the real trend.”
The Moody’s Analytics two-page report also touches on retail properties which, it says, is expected to “fare even worse than office properties.”
The report says retail properties effective rents are expected to dip by 11.1% this year “given the wide-scale stores closures and the rising threat to the sector posed by e-commerce.”
The report goes on to say that there is good news in some sectors.
Industrial and multifamily properties, the report says. are expected to do better than their retail properties and office properties counterparts.
The report continues: “Vacancies in those sectors are still projected to rise and effective rents are expected to turn negative, but the impact will not be as severe as on retail and office properties.”
Moody’s Analytics does forecast, in its report, that the U.S. office vacancy rate is expected to hit an historic high of 19/9% next year, surpassing the previous record high of 19.7% in 1991. The rate is projected to be 20% in 2022, the report says. The forecast for commercial real estate rents and vacancies covers eight property types and more than 3,000 submarkets across the country.
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