Office vacancy hits an all-time high despite more people returning to in-person work

• The US office vacancy rate rose to 13.1%, according to the National Association of Realtors.
• That's a new record high, despite more people returning to in-person work.
• NAR cited hybrid work, as tenants have decreased the average square footage per person.

The US office vacancy rate hit a record high of 13.1% at the end of last quarter, despite an uptick in people heading back to in-person work, according to the National Association of Realtors.

The vacancy rate surpassed prior highs from 2022, when every quarter stood above 12%. In the two years before the pandemic, the quarterly rate held at around 9.5%.

NAR attributed the new record high to hybrid work, which allows people to split their time between the home and the office, leaving a lot of space still empty.

Office tenants have lowered the average square footage they use per person, and 102 million additional square feet of space became available in the second quarter compared to the same period in the prior year, according to NAR.

Metropolitan areas that are central tech hubs led the rise, as a number of companies relocated on cost considerations. At the top were San Francisco, Houston, and Dallas-Fort Worth, with quarterly vacancy rates of 18.85% 18.64%, and 17.93%.

Meanwhile, other sectors of commercial real estate are also undergoing an expansion of vacant property, with implications on rent.

In the multifamily sector, the vacancy rate rose to 6.9% in the second quarter from 5.3% a year ago. That's on account of a 22% rise in supply over the past year, despite signs of dropping demand. With more property available to new tenants, rent growth fell to 1.1%

For the industrial sector, the vacancy rate climbed to 4.7% amid newly added spaces, while retail closed the quarter with an unchanged rate of 4.2%, the lowest among all the sectors.  

NAR also noted that the concerns about banking-sector turmoil have yet to have a large impact on commercial real estate, which relies heavily regional lenders. For now, borrowing is increasing weekly, while delinquency rates remain under 1%.

However, these are expected to worsen in the coming months, and any pullback in lending from banks could have a significant impact on the commercial real estate scene, NAR said.