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The troubles facing the commercial real estate sector might stick around for a little longer.
U.S. office vacancy rates could reach a peak of 24% in 2026, as remote-work trends continue to challenge whether office space is a strict need for many companies, according to a Moody’s report published Thursday. Office sector vacancy hit 19.8% last quarter, a new record-high.
Remote work is currently reducing the need for office space by about 14%, Moody’s found based on an analysis of survey and historical office data. One piece of the puzzle is the findings from the Survey of Working Attitudes and Arrangements, which suggests that nearly 20% of full working days will be done from home — four times pre-pandemic levels.
Many office workers shifted to remote work at the onset of the COVID-19 pandemic in 2020. Between 2019 and 2021, the number of Americans primarily working from home tripled to 27.6 million people, from 9 million prior to the onset of the pandemic, according to the Census Bureau.
As of last year, more than one-third of workers whose jobs can be done remotely are still choosing working from home all of the time, Pew Research Center found.
This has spelled trouble for the U.S. office and commercial property market, the largest in the world. Prices in the sector have plunged nearly 11% since March 2022, when the Federal Reserve began hiking interest rates — erasing gains from the preceding two years and deepening industry-wide woes.
But many of these shifts are still fresh. Moody’s said office vacancies are expected to reach a new equilibrium over the next decade, as the real estate market adapts to the new conditions.
“Right sizing will continue over the next decade as the market shakes out less efficient space for flexible floorplans that support our relatively new working habits,” the report’s authors wrote.
The market has already seen some of this evolution, particularly when it comes to shiny, new office spaces. Research from real estate services firm Jones Lang LaSalle (JLL) found that more than 80% of U.S. markets have seen record office lease rates over the past three years, often in buildings that have at least one attractive amenity, like proximity to transportation or upgraded spaces.