Office Development Experiences Steep Decline | Winter 2024

Amid ongoing discussions about the redevelopment of underperforming office buildings, panelists expect that the office sector will not fully recover until the end of 2026 as rental and occupancy rates weaken. As such, new development of office space continues to rapidly decline.

Respondents in Northern California anticipate no new development in 2024 as traditional office hubs such as San Francisco reach vacancy rates of 35.6%, whereas 20% expected to initiate at least one new office project a year ago. While 17% of respondents in Southern California expect to begin at least one new office project in the next 12 months, this figure is down from 29% in Q1 2023, with vacancies in the Greater Los Angeles area currently at 21.9%.

As corporate tenants evaluate their real estate needs, the office leasing process is becoming more complex. In the Winter 2024 Forecast, all San Francisco and East Bay respondents, 90% of Silicon Valley, Los Angeles, Orange County and San Diego respondents, and 85% of Inland Empire and Sacramento respondents observed increased subleases or slow-walking of the office leasing process.

Crystal Lofing, partner at Allen Matkins said: “Office owners are eager to fill their buildings, and, as a result, we are seeing an increase in turnkey buildouts where landlords assume construction costs and risks that, traditionally, tenants taking a material amount of space would have been responsible for. The landlords that are more flexible and more willing to take on complex projects are best positioned to boost occupancies.” 

See more insights in the Winter 2024 Allen Matkins/UCLA Anderson Forecast California Commercial Real Estate Survey.