Empty Spaces: US Office Vacancies Rise To Highest Levels in Four Decades
Portfolio Pulse from Neil Dennis
U.S. office space vacancies have reached their highest levels since 1979, with nearly 20% unleased in major cities by Q4 2023. The rise is attributed to overbuilding in the past and the shift to home and hybrid work models post-COVID-19. Texas cities like Houston, Dallas, and Austin face the highest vacancy rates, impacting local REITs such as Crown Castle Inc (CCI), which saw a 15.5% decline in 2023. Conversely, Boston Properties, Inc (BXP) in areas with lower vacancies saw a 5.3% increase. The article also compares U.S.-based REITs, like those in the Vanguard Real Estate Index Fund ETF (VNQ), which rose 6.2%, to the Vanguard Global ex-U.S. Real Estate Index Fund ETF (VNQI), with a smaller gain of 1.2%, reflecting challenges in the global market, particularly in China.
January 08, 2024 | 8:09 pm
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POSITIVE IMPACT
Boston Properties, Inc, located in a city with lower office space vacancies, experienced a 5.3% increase in its share price during 2023.
Boston Properties, Inc's positive share price movement can be attributed to the company's location in an area with less empty office space, which is a favorable factor for its real estate portfolio.
CONFIDENCE 75
IMPORTANCE 60
RELEVANCE 70
POSITIVE IMPACT
The Vanguard Real Estate Index Fund ETF, tracking U.S.-based REITs, rose 6.2% in 2023, indicating resilience in the domestic real estate market.
VNQ's increase reflects a relatively strong performance of U.S.-based REITs, despite the overall increase in office vacancies, suggesting investor confidence in the domestic real estate market.
CONFIDENCE 70
IMPORTANCE 50
RELEVANCE 60
NEUTRAL IMPACT
The Vanguard Global ex-U.S. Real Estate Index Fund ETF, with a focus on Asian property companies, saw a modest increase of 1.2% in 2023.
VNQI's smaller gain compared to VNQ suggests that international real estate, particularly in Asia, is facing more significant challenges, as evidenced by issues with companies like Evergrande in China.
CONFIDENCE 65
IMPORTANCE 40
RELEVANCE 50
NEGATIVE IMPACT
Crown Castle Inc, headquartered in Houston, Texas, saw its shares decline by 15.5% in 2023, likely due to the high office vacancy rates in the state.
The high vacancy rates in Texas cities, particularly Houston where CCI is headquartered, suggest a direct negative impact on the company's commercial real estate holdings, leading to the observed decline in share price.
CONFIDENCE 80
IMPORTANCE 70
RELEVANCE 80