Office vacancy rates in New York, San Francisco, Chicago, and Los Angeles have climbed above 20 percent, levels not seen since the savings-and-loan crisis of the early 1990s. Unlike previous downturns, the current vacancy surge shows few signs of reversing because the underlying cause, a structural shift in how knowledge workers spend their time, is not cyclical.
Landlords are responding with dramatic rent concessions and lease restructuring while property values decline across the sector. Some building owners are pursuing conversion to residential use, but the structural differences between office and residential construction make conversions technically challenging and expensive. Urban economists warn that prolonged high office vacancy will suppress city tax revenues and affect the viability of downtown retail and restaurant businesses.
