Vacancy Rates and the Future of Office Rents

Abstract

This research confirms the existence of a strong vacancy rental adjustment mechanism in the market for office space, such as has been found in housing markets. Using national time‐series data, we find that real office rents drop approximately 2% annually, for every percentage point of “excess vacancy” in the market. We also find that the definition of “excess vacancy” has been trending upward over time. Using a recent vacancy forecast suggests that office income streams seem likely to decline in both real and nominal dollars over the next few years.