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Wells Fargo Economics on Return to Office


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On November 21, Wells Fargo released its report titled “The Office Market Remains Off-Kilter”. The report provides an in-depth analysis of the current state and future outlook of the office market.

This report paints a picture of a shifting office market landscape, heavily influenced by changing work models and economic factors, leading to significant uncertainties in demand and supply dynamics.

Source: Bloomberg Finance L.P. and Wells Fargo Economics
Source: WFHResearch and Wells Fargo Economics

Key Takeaways from the Report:

  1. Impact of Hybrid Work: The shift towards hybrid work models continues to negatively impact the demand for office space. This trend is contributing to a high office vacancy rate, the highest since 2001, and a growing sublease market as companies downsize or opt for more flexible work arrangements​​.
  2. Vacancy and Availability Rates: The national office vacancy rate has increased to 13.3% in Q3-2023, up nearly four percentage points from the 2019 average. Availability rates, including sublease spaces, have risen even higher, exceeding 20% in major markets like San Francisco, Houston, Dallas, Denver, and Austin​​.
  3. Return-to-Office Trends: The return to office work is proceeding slowly, with weekly occupancy rates around 50% of pre-pandemic levels. There’s a notable variance across cities and throughout the week. Additionally, there’s a slight decline in job postings offering remote or hybrid work, indicating a potential reassessment of long-term remote work models​​.
  4. Employment Growth and Technology Impact: The office-using employment sectors (finance, information, and professional & business services) have shown only a modest year-over-year growth of 0.6% in October. Technological advancements, particularly AI, could further reduce the need for office space, although some tech-heavy markets might see a temporary boost in demand​​.
  5. Supply and Construction Trends: There’s a significant increase in office space supply, notably in sublease space. New construction projects, many initiated pre-pandemic, are adding to the inventory. However, new office construction starts have decreased, which could eventually help rebalance the market. There’s also discussion about converting excess office space into residential units, but financial and structural challenges limit this option’s viability​​.
  6. Office Property Prices and Rent Growth: Office property prices have fallen nearly 10% from their peak in June 2022, with transaction volumes hitting their lowest since 2010. Rent growth has slowed down, and landlords are offering concessions to retain tenants, indicating a likely further weakening in rent growth due to increasing supply​​.
  7. Future Outlook: The office market faces several challenges ahead, with continued adoption of hybrid work models and slower employment growth in key industries. The rapid growth in sublease markets and the shift towards higher-quality spaces are reshaping the landscape. Although efforts are being made to adjust supply to align with demand, achieving a balance in the office market seems to be a distant goal​​.

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