Looking at how much office space is currently on the market, or office vacancy rates, is a commonly used metric to gauge the health and performance of a market. Since many companies might be in leases but are planning not to renew, another way to understand the demand for office is to measure how much space is actually being occupied by workers, or occupancy rate.
Comparing the two metrics shows some surprising correlations. Of the 10 major markets we tracked, Houston and Austin had the highest office occupancy, with 60 and 60.6 percent, respectively, based on Kastle Systems data from mid-May. At the same time, both cities had some of the highest overall vacancy rates. (Austin’s overall vacancy rate was 18.9 percent in the first quarter, but in the CBD alone, the vacancy rate was 23.2 percent.) Dallas is also experiencing high office vacancy rates and a higher than average office occupancy rate.
On the flip side, some markets with lower overall vacancy also had lower than average office occupancy. New York City’s vacancy rate was the lowest among the 10 markets measured, but its occupancy rate was only 48.9 percent. Silicon Valley was a similar story. The market had a vacancy rate of 17.3 percent and an occupancy rate of just 38.2 percent. Since January of this year, total office occupancy in the U.S. has hovered around 50 percent, according to Kastle Systems’ Back to Work Barometer. The country’s overall office vacancy rate was 20.2 percent in the first quarter of this year.
|City||Office Vacancy||Office Occupancy|
Since office occupancy started being closely tracked three years ago, patterns have emerged based on geographic location. In Sunbelt areas, including major Texas cities like Houston and Dallas, workers tended to return to the office sooner and in higher numbers. Coastal areas like San Francisco and New York City tended to take more time to return to the office and overall figures were lower. That pattern seems to still exist, despite the overall office market experiencing higher vacancy rates. In Dallas in particular, 4 million square feet of vacant office space is set to be converted to other uses, which will drop the vacancy rate by 6.1 percent, according to JLL. It could also be the case that in areas where office vacancy is lower, companies are content with keeping office space even with lower occupancy rates. In New York City, where many companies have their headquarters, close to 80 percent of companies have models where workers aren’t always in the office. A recent study found that 78 percent of employers said they would have a hybrid policy post-pandemic.