Survey: Office market approaches ‘peak downsizing’ precipice

For the first time since the pandemic, corporate real estate executives’ sentiment has shifted slightly in favor of portfolio expansion, according to a CBRE report. 

Of 225 corporate real estate executives whose firms occupy office portfolios in the U.S., Canada and Latin America surveyed, 38% expect to expand their office space over the next three years, compared to 20% last year. Meanwhile, the share of the tenants that anticipate downsizing fell to 37% this year from 53% the previous year, the lowest level since 2021, according to the report. 

The battered U.S. office market also notched another good sign as its net absorption rate turned positive in Q2, meaning more space was leased than vacated for the first time since Q3 2022, according to a separate CBRE report.  

The slight shift in sentiment away from contraction comes as the office market is still battling through a deep slump: The trend toward remote work has eroded demand for office space, sent office vacancies to record highs and led U.S. regulators and banks to warn that losses on office loans pose a looming risk. 

Experts are cautious about the timing of a recovery, noting that the U.S. office vacancy is still rising even as CBRE is anticipating it will peak in the middle of 2025 at about 19.8%. In addition, the study found a disparity in the office space strategy according to company size.  

The majority (58%) of large companies with 10,000 or more employees indicated that they still plan space reductions as compared to 26% of all other respondents surveyed.  

With so much variation in the current office market, it’s more important than ever for CFOs looking to get good deals on office leases to understand the dynamics of the submarket and the landlords. That means knowing what the landlord’s tenant stack, lease roll periods and debt structure looks like.