The US office sector is in “uncharted territory,” according to a sector report from Colliers, as debate rages on about the future and importance of physical office space to companies and employees alike.
“The office sector is facing a set of challenges that could result in significant structural shifts over the years ahead,” the report notes. As of Q2, the US office vacancy rate is 15.1%, ”comfortably below” the record peak of 16.3%, while net absorption, was positive in over half (53%) of the office markets the firm tracked in its national survey in the second quarter. National office absorption totaled 3.1 million square feet and has been positive in three of the past four quarters starting in Q3 2021, the report notes.
In addition, “tenants continue to show a clear preference for the best quality space,” Colliers experts say. Class A absorption in the second quarter totaled 5.6 million square feet, whereas the combined amount for Class B and C space was negative 2.5 million square feet. Chicago was the hardest hit large metro with 997,000 square feet of negative absorption in the second quarter, while the so-called “bifurcation of the San Francisco Bay Area” continues, with second quarter net absorption negative 505,000 square feet in the City of San Francisco and up 707.000 sf in Silicon Valley.
CBD vacancy is now higher than suburban levels (15%), the first time this has occurred in the history of Colliers’ data series. A record amount of sublease space is also available at 217.8 million square feet, “significantly higher” than the prior peak of 143.3 million square feet seen in Q2 2009.
“As firms continue to evaluate their post-COVID real estate needs, sublease space will remain a cost-competitive, short-term option until there is greater clarity on business and economic direction,” Colliers experts say.
According to Kastle Systems key swipe data from August, US occupancy is somewhere between 43% to 44%, a level where it’s been since April. Nearly 243 million square feet of office leases are set to expire in 2022, representing roughly 11 percent of office inventory in the US, and the widespread adoption of hybrid work is expected to cause a 15% drop in office space demand nationally.