The good news: “a significant share of occupiers are staying the course on longer-term plans for pursuing new leases.”
Office leasing was tepid in January as concerns over the Omicron variant continued to plague occupiers, but it’s not all bad news: a recent uptick in tenant requirements has tempered the slowdown, suggesting that the pause may be temporary.
“Despite this temporary slowdown in lease signings in December and January, the more forward-looking indicator—the increase in companies in the market searching for new office space—bodes well for the office-market recovery soon regaining momentum,” said Nicole LaRusso, CBRE Director of Research & Analysis and lead author of the report.
According to the most recent CBRE indices tracking leasing activity across the 12 largest US office markets, cities that had been making progress in leasing maintained the status quo in January while those who had struggled continued to do so. CBRE’s US tenant in the market index ticked up to 89, up three points over December’s numbers, with Houston, Boston and Denver all exceeding pre-pandemic levels. In addition, Dallas-Fort Worth, Seattle, Chicago and Manhattan all hit 90% or more of their pre-pandemic numbers.
Seven of the 12 markets tracked by CBRE saw their TIM index increase or remain steady, a development the firm says suggests “a significant share of occupiers are staying the course on longer-term plans for pursuing new leases.”
The CBRE US leasing index, meanwhile, declined to 89 last month, a decrease of 8 points over December figures. Ten of the 12 markets CBRE tracks saw their leasing index levels fall, with Boston, Manhattan, and Atlanta posting the largest declines—though CBRE says expectations for the latter two cities are for leasing to bounce back quickly as omicron recedes. Denver and Seattle were bright spots, however, with the Mile High City posting a strong surge and Seattle showing modest improvement.
Real estate tech platform VTS reported last month that new employer demand for office space has been on a five-month drop and is now at 58% of normal.
“Despite a better than usual end of the year, looking ahead into 2022, I expect bruised sentiment to continue to materially impact demand for office space,” VTS CEO Nick Romito said.
The US sublease availability index increased 2 points to 195 in January, but has remained at that level for several months running. Seven of the 12 markets saw sublease inventory increase in January, and the sublease index is roughly double its pre-pandemic level. Four markets registered declines in their sublease indices last month: Boston, Chicago, Seattle and San Francisco.
“The glut of surplus sublease space remains the biggest challenge facing the US office market heading into 2022,” LaRusso notes in the report, adding that the recent uptick in sublease space was driven by a slowdown in the absorption of existing sublease space and the continuing threat of COVID-19 variants.