US office space is set to shrink for the first time on record thanks to the rise in remote work and a drop in new construction — but there’s an unexpected upside to the trend

“We would have a lot of confidence in saying that national office inventory has never actually declined in the past,” Jacob Rowden, U.S. office research manager for the commercial property brokerage, told Bloomberg.

“We have done some high-level estimates in the past and think that the closest we came to negative inventory historically would have been during the 1930s at the height of the Great Depression.”

Office space is poised to shrink

In just the first half of 2023 alone, 14.7 million square feet of national office inventory was removed, while 12.7 million square feet was converted into other property types, reports JLL.

And in the second quarter of the year, just 1.4 million square feet of new office construction broke ground.

The rise in remote work policies — particularly during COVID-19 lockdowns — has reduced the need for available office space, while surging borrowing costs are hurting landlords, some of whom have filed for bankruptcy or gone into default.

Rowden also told Bloomberg that although vacancy rates during the Great Depression likely surpassed the current 20% average in the U.S., there was still plenty of new construction — like the Merchandise Mart opening in Chicago in 1930 and the Empire State Building in Manhattan in 1931.

“The last 12 to 24 months have compounded some of the existing trends to push us to the point where negative inventory, at least for a temporary period over the medium term, is becoming highly likely,” Rowden said.

Some office spaces are being converted into apartments

There’s been an unexpected upshot to the decline in office space — some buildings are being repurposed for residential use, a welcome reprieve for Americans struggling with the ongoing housing crunch.