The state of the office: Observations regarding the recent behavior of the U.S. office market
Real estate investors traditionally have viewed the office market as the most volatile property sector when compared with apartments, industrial and retail. A key and distinctive observation regarding the dynamic behavior of ofﬁce markets has been the periods of persistently high and low vacancy rates. In contrast with the other major property sectors, ﬂuctuations in ofﬁce vacancy are far more pronounced and last longer. This higher degree of volatility may indicate the ofﬁce market does not stabilize as quickly and, rather, stays in a state of disequilibrium for longer periods.
A couple of standard explanations are:
• Supply risk: Recurrent overbuilding has been a primary factor in creating periods of persistent oversupply in the office market. An important characteristic of the office market is the substantial lag between the start of a project and completion of construction. Downtown ofﬁce buildings, for example, may take two t