Demand for office space isn’t where history tells us it should be, and it looks like new ways of working—not the strength of the economy—are to blame. The WSJ reports:
Employers have only reoccupied about 52% of the 142 million square feet that went vacant amid the economic downturn, with occupancy in the second quarter growing by 2.8 million square feet, according to numbers set for release Tuesday from real-estate-data firm Reis Inc.
It wasn’t surprising that office occupation dipped during the economic crisis; historically, the two tend to correlate. What is significant, however, is the tepid rebound:
[D]uring this economic cycle, companies have been more reluctant than usual to expand, which many in the sector believe reflects a trend by companies to pack a greater number of employees into tighter spaces. This is partly a cost-savings measure but it is also a strategy some companies are using to encourage workers to collaborate.
Expect telework to accelerate this trend even more, and the shift toward an information-based economy will further undermine the market for office spaces. Tech firms use less space per worker and need fewer workers per unit of output. As tech gets more important, America’s commercial real estate market may come to look increasingly overbuilt. The office tower, like the mall, was an icon of late 20th century life. The internet has already knocked the American mall off its pedestal; the internet is also going to take a bite out of the American office-space market.