: ‘1.5 billion square feet of office space could become obsolete,’ says Boston Consulting Group

by | May 13, 2023 | Stock Market

The pandemic normalized work from home. But many companies have permanently gone remote, putting the pressure on office spaces across the U.S. That post-pandemic pivot has sent office real estate into a downward spiral. The drop in demand for office space is turning up the heat for many office landlords as their buildings face the risk of becoming “zombies,” according to a new report from Boston Consulting Group released on Thursday.

Many office spaces are at risk of becoming obsolete due to low use, high levels of vacancy, and their financial viability is “quickly slipping away,” the report said. Rising interest rates and the need to refinance trillions of dollars of maturing debt in the next few years will also add a layer of uncertainty and possibly even lead to “a wave of defaults,” the company said, and lenders could become owners of office buildings. Boston Consulting Group estimated that 60% to 65% of current U.S. office space will not be needed. “That means about 1.5 billion square feet of office space could become obsolete, which would translate into $40 billion to $60 billion of lost revenue for building owners,” the report said.Office spaces are already on the path to extinction Big office landlords are already seeing a drop in cash flow, according to Barclays
researchers. Based on first-quarter earnings reports, net operating income fell year-over-year at half of the 18 public real-estate investment trusts that are focused on office buildings.  And the amount of office space that’s available to be leased is climbing. In …

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