A lack of new construction and a glut of aging office space being repurposed or destroyed will lower the amount of office space nationwide, Bloomberg News reported Thursday, citing a report from JLL. Less than five million square feet of new offices broke ground in the U.S. year to date, while 14.7 million square feet has been removed, often for conversion into buildings for other uses. 

“Conversions are being driven partially by a converging of valuations between office assets and multifamily assets, but a more significant catalyst has been shifting incentive and regulatory structures in major cities,” JLL said in its second-quarter office outlook report. 

Specifically, “many of the largest office markets in the U.S. are creating financial incentives for adaptive reuse of office buildings and attempting to lower regulatory barriers.” 

Although 85 million square feet of office space is under construction for delivery in the coming years, and 12.4 million square feet was delivered during Q2 alone, JLL forecasted that new construction deliveries will begin to decline “precipitously” from 2025 through 2027.  

“At that point in time, it is likely that supply constraints in new construction will both intensify the existing flight to quality among occupiers, but also drive spillover demand into secondary tiers of quality,” the report stated.