More office space is being removed than added for the first time in at least 25 years

Core Insights - The U.S. office market has reached an inflection point, with office conversions and demolitions surpassing new construction for the first time in at least 25 years [1][2] Market Dynamics - More office space is being removed than added, leading to a reduction in the overall office footprint [2] - In the largest 58 U.S. markets, 23.3 million square feet of office space is set for demolition or conversion, while only 12.7 million square feet is projected to be completed in new construction [3] Vacancy and Demand Trends - The net reduction in office space is expected to lower the vacancy rate, which currently stands at around 19%, benefiting building owners [4] - There is a growing trend of employers requiring staff to return to the office full-time, contributing to a tightening job market [5] Absorption and Leasing Activity - Net absorption has been positive for the past four quarters after a previous six-quarter decline, with office-leasing activity increasing by 18% in Q1 compared to the previous year [6] Rental Market Outlook - With reduced supply and increasing demand, office rents are expected to stabilize, particularly in prime locations and Class A spaces [7] Conversion and Development Trends - Developers are preparing an additional 85 million square feet of office space for conversion in the coming years, with historical conversions yielding about 170 units per project [9] - The conversion trend is seen as beneficial for commercial real estate, although it faces challenges such as dwindling ideal buildings for conversion and high construction costs [10]