The office sector is still in deep trouble—just look at these 2 numbers

One Riverway, a 25-floor, 507,500 square-foot office tower in Houston, is scheduled to be auctioned off next month. The building is only about 62% occupied after tenant Thomas Coe, a large law firm leasing 50,000 square feet, left in January. 

One Riverway is among the numerous office buildings on the brink of foreclosure due to the persistence of remote and hybrid work arrangements, which keep occupancy rates low, and the impending need to refinance office loan debt in a higher interest rate environment.

ResiClub reached out to JLL, a commercial real estate and investment management company, for data from its most recent U.S. office outlook report.

These 2 numbers from JLL explain just how much trouble the office sector is in:

265,897 = Square feet of new office building construction started in Q1 2024

10,562,590 = Square feet of new office building construction started in Q1 2020

Groundbreakings for office buildings hit an all-time low in Q1 2024, according to JLL.

Click here to view an interactive version of the chart below

Groundbreaking square footage includes new office space construction and doesn’t include office space square footage that is already under construction or was delivered that quarter. In Q1 2024, there were 7.8 million square feet of new office space delivered—the lowest volume of completions in the past several years—but also the highest level of completions for the foreseeable future, according to JLL. 

While there’s still 55 million square feet of office construction in the pipeline, that’s more than 60% lower than pre-pandemic levels.

“The office pipeline has responded aggressively to interest rate increases and shifting allocations from core capital,” JLL analysts wrote in the report. 

Along with new office construction coming to a near halt, there's a growing trend towards converting existing office spaces, which is gradually gaining momentum. In Q1 2024, the rate of inventory removal jumped up 50% and the national office inventory fell by 1.3 million square feet, JLL reported.