Here Are the Top 10 Cities With Highest Office Vacancy Rates

Office vacancy continues to drop across the country on average while the economy chugs along.

The amount of empty offices peaked at 13.2% in late 2010, according to CoStar. The economy still was gathering steam at the time, and there was more new office space available than tenants taking it.

Leasing has generally outpaced new construction over the past several years. Today, office vacancy sits at about 9.6%.

For various reasons, office vacancy rates in some of the country’s biggest cities exceed the national average mainly because of differences in local economies relative to the national economy. Elsewhere, the rates have dropped off significantly from post-recession highs.

Based on data gathered from CoStar, here are the Top 10 cities with the most office vacancy as of July 15.

10. Memphis – 10.4%

The West Tennessee city is noted more for being a warehouse-and-distribution hub than a corporate office location. Of the Top 10, Memphis has the second-least amount of office space at 56.2 million square feet. Little new construction combined with a modicum of demand has helped tighten up office vacancy since the peak years of 13.1% between 2011 through 2013.

CoStar’s Memphis market report noted that some prominent local companies have sought to move into better space, notably ServiceMaster's decision to consolidate locations in a converted shopping mall in downtown. FedEx also is moving its global logistics headquarters downtown into the former Gibson Guitar factory.

9. Tulsa – 11%

The Oklahoma city’s office market has struggled because of its reliance on the energy sector for job growth, according to CoStar’s Tulsa market report. With the smallest amount of office space at 48.8 million square feet, vacancy has ticked up the past three years.

Most new construction has been built for a specific company, such as the new downtown headquarters WPX Energy has announced. Speculative office development is rare, CoStar’s report noted. A variety of office properties have actually been converted to hotels and apartments.

8. Atlanta – 11.4%

Georgia’s capital city has seen office vacancy decline from a peak of 16.6% in 2010. “The Atlanta office market is in a solid position,” CoStar’s Atlanta market report said. The report added that vacancy is below its historical level because of consistent, strong demand and fairly tame office construction.

A round of new speculative office projects could push vacancy up but strong leasing has helped temper fears of overbuilding, the CoStar report noted. Atlanta has 7.7 million square feet of office under construction, or 2.5% of the total office space in the area. That’s the second highest percentage in the Top 10.

7. Las Vegas – 11.8%

Office vacancy reached 18.9% in 2011. The recession had hit the casino-and-resort haven hard before a steady run of economic good fortune brought visitors back. But tourists don’t fill office space. And the job growth associated with rising tourism doesn’t drive demand for office space, according to CoStar’s Las Vegas market report.

As a result there has been relatively little new construction. One of the biggest new buildings opened in 2017 to house Ultimate Fighting Championship’s headquarters.

6. Chicago – 11.9%

Office vacancy hit 15.1% a decade ago and has steadily tightened up since. Downtown Chicago, in particular, has had space fill up from companies moving from the suburbs, which drove up vacancy outside the city, CoStar’s Chicago market report said.

“Given the general lack of construction in the suburbs, vacancies are more likely to show improvement there than they will downtown where development has already picked up steam,” the report said. Of the 6.9 million square feet under construction in Chicago, the largest chunk is downtown.

5. Northern New Jersey – 12%

The area anchored by Newark struggled for a number of years as the region's dominate pharmaceutical industry went through a spell of consolidation. CoStar’s Northern New Jersey market report said the area will probably find it hard to make up the difference if it can’t find other industries to fill space.

Vacancy rates have declined some, thanks to leasing by firms such as Ralph Lauren, which took all of a building in Nutley, New Jersey, that had been on the market for four years. The drop in vacancy also has been helped by a drop in supply. Some 1 million square feet of office space was either converted or demolished last year. More came off this year. CoStar’s report said Honeywell’s former 1.2 million-square-foot headquarters could be demolished and redeveloped.

4. Phoenix – 12.1%

Arizona’s capital, like Las Vegas, got hammered by the recession. Office vacancy hit 20.4% during in 2010. This time around, the economy has been taking on more of a technology flavor with many of the newest corporate residents shifting from California to the Phoenix area in search of more affordable confines, according to CoStar’s Phoenix market report.

The list of companies taking up space include Houzz, Waymo, Offerpad, ZipRecruiter and Amazon. Major companies also have set up information technology operations there. Real estate developers have been adding new space and currently 3 million square feet is under construction.

3. Washington, D.C. – 12.9%

The nation’s capital has the most office space in the Top 10 at 500 million square feet. Its vacancy rate has stayed roughly the same for several years. It peaked at 13.9% in 2015, according to CoStar data.

Aside from the federal government, the D.C. area has a growing technology sector. Amazon made headlines when it selected Northern Virginia’s Crystal City area for its second headquarters location and bought a site that has potential for more than 4 million square feet.

CoStar’s D.C. market report said developers continue to build in places where they think big tenants will fill space. D.C. leads the Top 10 in most square footage under construction at 10.9 million.

2. Dallas-Forth Worth – 14.8%

Despite a vacancy rate that is more than five points higher than the national average, Dallas has the second-highest amount of office space under construction with 10.1 million square feet. Employment growth has been a big factor in driving demand for construction.

“Even with the building, vacancies should remain stable due to a significant portion of new space being pre-leased, and the near-term speculative pipeline is relatively muted,” according to CoStar’s Dallas-Fort Worth market report.

CoStar data shows that about 56% of the space under construction is pre-leased. And the city has had growth in rental rates at roughly the national average of 2.2% because landlords of new office space can usually command higher rents than those managing existing space.

1. Houston – 16.5%

Houston’s office vacancy has risen above recession levels. In 2009, the rate was at 13.4% and dropped to 10.4% by 2014.

The Texas city went through spate of construction several years ago. But demand hasn’t grown fast enough to fill the space. An energy industry slump driven by low oil prices several years ago and flooding from when Hurricane Harvey hit the area in 2017 didn’t help matters.

“Houston’s significant space availability means that landlords must continue to offer free rent and concessions to attract tenants,” according to CoStar’s Houston market report.