Ranked: The U.S. Cities with the Most Vacant Offices
For many across the U.S., hour-long transit rides and traffic jams to work have been replaced by roll-out-of-bed commutes and stand-up desks at home, leaving vacant offices behind.
Long story short, more and more offices in major U.S. cities are empty. At the end of March 2023, the national average vacancy rate of U.S. offices had climbed as high as 18.6%.
So how have different cities in the U.S. been impacted? This ranking uses data out of fDi Intelligence to rank the top 10 cities that have seen the biggest increases in office vacancy rates from Q4’2019 to Q1’2023.
It is anticipated that by 2030, over 300 million square feet of U.S. office spaces will be obsolete.
According to Pew Research Center, around 35% of U.S. workers who can work from home in 2023 are already doing so all the time. In short, unless trends begin to reverse, offices in many cities will stay empty or continue getting emptier.
Here’s a closer look at the cities with the fastest growing vacancy rates in percentage points (p.p.) terms since just before the COVID-19 pandemic:
|Rank||City||State||Change in Vacancy Rates
Q4'2019 vs. Q1'2023
|#1||San Francisco||California||+19.8 p.p.|
|#2||New York City (Midtown South)||New York||+14.2 p.p.|
|#5||Salt Lake City||Utah||+13.1 p.p.|
|#6||New York City (Downtown)||New York||+10.7 p.p.|
|#9||Raleigh-Durham||North Carolina||+10.4 p.p.|
|#10||New York City (Midtown)||New York||+10.4 p.p.|
San Francisco has been hardest hit, with vacancy rates climbing by 19.8 p.p. in just over three years. Meanwhile, New York City has added over 16.8 million square feet, equivalent to 293 football fields, of new office space since Q4’2019 between its three most vacant neighborhoods.
However, not all of the cities with the most vacant offices are huge metropolises. Urban areas like Austin, Columbus, and Raleigh-Durham have also seen massive increases in their office vacancies, but their increasing rates may be blamed more on new construction and oversupply than to falling demand.
The Office Real Estate Market
At the national level, the supply of new office real estate has been dropping steadily since Q1’2022, down by a whopping 67% year-over-year.
Overall, it looks like U.S. office buildings are not as bustling as they once were, but there still may be opportunities for the office real estate market in growing cities.
Visualizing 1 Billion Square Feet of Empty Office Space
Empty office space is hitting record highs in 2023. We show almost 1 billion square feet of unused space stacked as a single office tower.
1 Billion Square Feet of Empty Office Space
In April, one of America’s largest office owners, Brookfield, defaulted on a $161 million loan.
The loan, covering 12 office buildings, was mainly concentrated in the Washington, D.C. market. Faced with low occupancy rates, it joined other office giants Blackstone and WeWork defaulting on office debt this year.
The above graphic shows nearly 1 billion square feet of empty office space in the U.S. based on data from JLL—and the wider implications of office towers standing empty.
Ranking U.S. Cities by Empty Office Space
At the end of the first quarter of 2023, a record 963 million square feet of office space was unoccupied in America. An estimated five to 10 office towers are at risk of defaulting each month according to Manus Clancy, senior managing director at Trepp.
Here are cities ranked by their total square feet of office vacancy as of Q1 2023. Figures include central business districts and suburban areas.
|Ranking||Market||Total Vacancy (SF)||Total Vacancy (%)|
|18||Salt Lake City||13.9M||18.5%|
|46||San Francisco Peninsula||4.4M||13.3%|
|49||North San Francisco Bay||4.0M||18.3%|
|53||West Palm Beach||2.4M||10.3%|
Numbers may not total 100 due to rounding.
New York has roughly 76 million square feet of empty office space. If this were stacked as a single office building, it would stretch 7 miles into the atmosphere. In 2019, the office sector accounted for about a third of all jobs in the city.
Falling closely behind is Washington, D.C. with a 21% vacancy rate—8% higher than what is typically considered healthy. Occupiers are downsizing given remote work trends, yet some office buildings are being converted to residential properties, curtailing vacancy rates.
Across 54 markets in the dataset, San Francisco has the highest vacancy rate at over 26%. Prior to the pandemic, vacancy rates were about 4%. This year, Salesforce walked away from a 30-story tower in downtown San Francisco spanning 104,000 square feet in an effort to cut costs.
Overall, rising interest rates and higher vacancies have hurt U.S. office markets, with many cities potentially seeing an uptick in vacancies going forward.
Empty Office Space: Impact on Banks
Office building valuations are projected to fall 30% in 2023 according to Richard Barkham, global chief economist at CBRE Group.
A sharp decline in property values could potentially result in steep losses for banks. This is especially true for small and regional banks that make up the majority of U.S. office loans. Big banks cover roughly 20% of office and downtown retail totals.
Consider how commercial real estate exposure breaks down by different types of banks:
|Bank Assets||Commercial Real Estate Loans|
% of Total Assets
|Share of Industry Assets|
For big banks, a recent stress test by the Federal Reserve shows that a 40% decline in commercial property values could result in a $65 billion loss on their commercial loan portfolios. The good news is that many big banks are sitting on healthy capital reserves based on requirements set in place after the global financial crisis.
Smaller banks are a different story. Many have higher loan concentrations and less oversight on reserve requirements. If these loan portfolios deteriorate, banks may face a downgrade in ratings and higher credit losses.
Additionally, banks with loans in markets with high vacancy rates like San Francisco, Houston, and Washington, D.C. could see more elevated risk.
How High Rates Could Escalate Losses
Adding further strain are the ramifications of higher interest rates.
Higher rates have negatively impacted smaller banks’ balance sheets—meaning they are less likely to issue new loans. This is projected to cause commercial real estate transaction volume to decline 27% in 2023, contributing to lower prices. Banks have already slowed lending for commercial real estate in 2023 due to credit quality concerns.
The good news is that some banks are extending existing loan terms or restructuring debt. In this way, banks are willing to negotiate new loan agreements to prevent widespread foreclosures from hurting their commercial loan portfolios. Short-term extensions on existing loans were often seen during the global financial crisis.
Still, foreclosures could take place if restructuring the loan doesn’t make financial sense.
Overall, only so many banks may be willing to wait out the uncertainty with loan extensions if fundamentals continue to worsen. Offices that are positioned to weather declines will likely have better quality, location, roster of tenants, and financing structures.
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