The wave of office distress anticipated since the peak of the pandemic has begun to materialize at the beginning of 2025, CommercialEdge reported. Following a period of post-pandemic growth, office utilization has been flat for the past two years and now averages just 54%, according to CommercialEdge, citing Kastle’s Back to Work Barometer.
Meanwhile, U.S. office vacancy rose 170 basis points year-over-year to 19.9% at the end of March. “It has become clear that new attitudes focused on remote work are here for the long haul,” CommercialEdge’s Laura Pop-Badiu reported.
The average property size for distressed transactions rose 30% Y-O-Y to exceed 200,000 square feet, suggesting large properties are increasingly vulnerable. CBD transactions in distress tripled in 2024 from the previous year, while urban properties nearly doubled. Although suburban transaction totals leveled off, they still accounted for half of all distressed office properties registered in 2024.
“While the office market outlook seems gloomy in the near term, opportunities to adjust will present themselves as the uncertainty surrounding the sector lifts and things begin to move,” Pop-Badiu reported. “Pressure will ease off owners as less supply comes online over the next few years. Office starts halved from 50 million to 25 million square feet in 2023, and again to 12 million in 2024. This will give some much-needed breathing room for owners looking to find their place in this decades-long shift happening in the sector.”
Pictured: The 882,071-square-foot Schaumburg Towers in Schaumburg, IL, which sold in early 2024 after a takeover by its lender.
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