Office Construction May Never Return to Pre-Pandemic Levels

In February 2023, JE Dunn started construction on what will be, at completion, the tallest building in Nebraska at a staggering 677 feet. Despite the $600 million undertaking for the new Mutual of Omaha corporate campus as well as other projects beginning across the country, economists still have a gloomy outlook on total office construction, with forecasts showing a six percent drop to $37 billion in 2024, according to Dodge Construction Network’s most recent webinar.

Coinciding with this drop in new office construction, office vacancies are sticking to double digits at a concerning 18 percent, which is around 140 basis points higher than it was in 2022, and if that news was not troubling enough, the trend is expected to continue for 2024.

While speculative office construction is trending downward, it does not mean that all construction is moving in the same direction. Thankfully, alteration projects are on the rise. These projects include making changes to existing buildings that affect usability with projects such as renovating, rearrangements in structural parts, or remodeling. Gilbane Building Co’s $500 million modernization project for Northwestern Mutual in Milwaukee and Shawmut Design and Construction’s transformative project on a 100-year-old building at 712 Fifth Avenue in New York City are just two of the many notable alteration projects. Historically, alteration projects held around 30 percent to 35 percent of office activity, but in the last two years, this sector has seen a slight jump up to 50 percent of total office activity, which is promising for construction firms to parlay into.

While owner-built campuses are a small amount of total office activity, around 10 percent, the slight uptick is promising, with experts hoping the numbers keep trending this way. Speaking further on corporate campuses, the $460 million technology and research center for real estate data company CoStar Group located in Richmond, Virginia, is another significant development.

The outlook for the construction industry is not great, with an expected drop in new construction and a rise in office vacancies. Office alteration projects have increased and are sustaining the market for now, but industry experts are looking forward to the next five years, monitoring the market for improvement and waiting for a corporate campus revival.