The post-pandemic office revival appears to have plateaued, leaving cities with millions of square feet of unused commercial space. Meanwhile, other 'urban-esque' neighborhoods have sprung up, sometimes far from the traditional central business district.
And it's the largest cities with the biggest problems. In New York's Manhattan, office vacancies are at a record high,, even as new properties come online, adding even more space to the struggling market. And in Los Angeles and Chicago, office vacancies sat at 22.5% as of the fourth quarter of 2022.
These neighborhoods are plagued with aging office properties and outdated amenities from bygone eras, JLL's Ryan said. He estimated that in U.S. cities, 70% of properties in downtown cores were built 30 years ago. For places like Manhattan and San Francisco, that number rises to 90%.A property's financial distress may not immediately affect the building's tenants, including any retail that might be at the street level.
"As that builds up across lots of tenants, it results in a contraction in demand for office space," Anderson said.
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