Hybrid work set to drive US job openings to record highs by 2030

Hybrid work will push U.S. office vacancy rates 55 percent above pre-pandemic levels to a record 1.1 billion square feet by 2030, according to a drastic industry forecast trying to quantify the damage to the commercial real estate sector caused by changing work patterns bring.

Commercial real estate consultant Cushman & Wakefield’s report found that by the end of the decade, 330 million square feet of office space — roughly the equivalent of the entire Washington metro area’s office stock — would be rendered redundant by hybrid or remote work. In addition, there would be another 740 million square feet of space classified as “normal or natural” vacancy.

Cushman concluded that about a quarter of US office space is already undesirable and another 60 percent is at risk of obsolescence and may require “significant investment” to either modernize it or repurpose it — a transformation that will start New York City now begins to embrace. While such trends are most acute in North America, they are also evident in Europe and Asia, the company noted.

“Obsolescence is kind of the word of the day right now,” said Andrew McDonald, Cushman president, calling the report an acknowledgment of “perhaps a tipping point.”

The forecast is remarkable both for the magnitude of the results and for the fact that it was carried out by one of the leading players in the commercial real estate industry. Like most in the industry, Cushman, until recently, has tended to take a more serene view of the long-term implications of hybrid working.

But Cushman has since recognized that the industry is in the midst of sustained structural changes that are likely to intensify. So far, just a third of office leases expiring between 2020 and 2030 have expired, meaning landlords could find a growing number of tenants shedding space or abandoning buildings altogether in the coming years.

As US hiring recovers from the worst of the pandemic and unemployment is back to historic lows, Cushman’s chief economist Kevin Thorpe noted that a long-standing correlation between job growth and corporate demand for office space has been “broken.” sei,” implying that the post-Covid recovery failed to fill empty offices. Tenants were now seeking less space per worker, although how much less was not clear. “The trend is down, although the magnitude of the downshift is still in flux,” Thorpe said.

In a sign of the changing market, Cushman has revived the distressed assets team it assembled after the 2008 financial crisis to advise clients on distressed buildings and investments. However, McDonald said there was “no evidence yet of a widespread emergency” and most of the damage Cushman saw was focused on specific office buildings.

The company’s results reflect a growing body of comment from real estate developers, many of whom noted how rising interest rates were exacerbating the challenge of rising vacancies.

Speaking on a earnings call last week, Steven Roth, chief executive of Vornado Realty Trust, conceded that hybrid working would not be a passing phenomenon, telling analysts, “I think you can rest assured that Friday is dead forever. . . Monday is touch and go.”

Roth also acknowledged that in the current environment, it’s “nearly impossible” to fund the company’s ambitious — and controversial — plan to build a series of office towers around New York’s Penn Station.

Scott Rechler, chief executive of RXR, another leading developer, said earlier this month that the company had to sell some of its office buildings to lenders after realizing they were no longer competitive and could not be easily repurposed.

Like other developers, RXR has increasingly focused its resources on a handful of trophy properties with the most modern amenities and prime locations. These are still in high demand among tenants and have become a class of their own. In his report, Cushman predicted that by 2030 only 15 percent of US office space would fall into this new and highly selective category.