What is office vacancy rate
Office vacancy rate (how much office space is not occupied) is one metric used to measure if the demand for office space is sufficient, increasing or decreasing. It could also indicate an acute oversupply of office space if the vacancy rate is 50% for example. This meant that half of all the office buildings are NOT occupied. Thus, the lower the vacancy rate number, the better.
What if office vacancy rate is too low
Do note that if the office vacancy rate is too low, it will also meant demand far outstrips the supply of units and this will usually push up rental prices. Great for owners but not awesome for the tenants. Cost will then be higher because office rental is a huge chunk in operating expenses.
Decision Science versus Political Science
This is why the government must always ensure the supply is not simply approved and cause an oversupply but must also not be so strict or slow that demand far exceeds supply. It’s not easy job and needs professionals to do it yeah. Decision science is needed and please do keep political science out of the picture when it comes to real estate development for the people.
What is occupancy rate then?
Some countries may use occupancy rate instead of vacancy rate. Occupancy rate tells the same story about office demand and supply but it’s just the opposite. The higher the occupancy rate, the better it is and the lower the occupancy rate, it meant that the supply may be too overwhelming or the demand is just not forthcoming. One latest number I could find as per published by The Edge Markets as below:
Now let’s look at one country which is badly affected by COVID-19 and some OTHER issues currently. Article in nst.com.my. San Francisco’s office market is being hit very hard by the pandemic. Commercial real estate brokerage Cushman & Wakefield in a report showed that the city’s office-vacancy rate reached 16.7 per cent at the end of 2020. This is a level worse than the aftermath of the 2008 recession.
It says that companies have been reevaluating their office needs after months of pandemic lockdowns showed them that it was possible to function with employees working from home. That’s caused a spike in vacancies, especially in cities like New York and San Francisco, where the cost of renting space is higher.
With vaccines, there are early signs of recovery. Do refer to the comprehensive article here: Article in nst.com.my
COVID-19 and Vaccines’ Arrival
COVID-19 can be stopped with the vaccines. The only issue right now is how fast we could get everyone vaccinated. The process, even in America remains slow. In some countries, it is even slower. Malaysia will only get the first batch of vaccines in February 2021. However, what the report so indicate is this. When recovery starts, then the demand for office space will certainly inch upwards. Just remember that there are choices; cheaper office rentals, working from home option and also the business needs.
My good friend who owns a retail unit in a major mall told me that her online sales have exceeded that of her retail shop since the start of our first MCO until today.
Happy understanding that perhaps things which happen in some developed real estate markets may offer us some clues on some of the potential happenings here as well. They were hit by COVID-19 and we were hit by COVID-19. Learn and take appropriate actions. It usually helps tremendously too.
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