It has been amply clear that both an uncertain economy and the remote work trend have taken a toll on the sentiment of tenants in the market, many of which have been deferring lease decisions to see how these trends will shake out. But which trend is the driving factor behind this reluctance? The answer would provide some insight into the long-term prospects of the office asset class.
CBRE has concluded that because leasing activity was strong for several months in 2021, it is more likely that cyclical events are the bigger influencer. If the economy calms down and becomes more even keeled, a rebound in TIM and leasing activity may follow.
Although New York City may not be a favorite place as far as living and housing, according to a recent GlobeSt.com report, it is a place where office requirements are up by 2% on a square footage basis. In fact, it was the only market where that number was up when compared with pre-pandemic levels at the end of 2019. Of the top 11 U.S. office markets tracked by CBRE, TIM levels increased in six and fell in five from six months earlier. Dallas and Boston have what CBRE calls “relatively healthy TIM levels, but Denver, Philadelphia and Seattle have the lowest. In between are Chicago, Los Angeles, Atlanta, Washington, D.C. and San Francisco.
TIM levels fell in six of nine industry groups between the end of 2019 and April 2023, with the tech industry’s average falling the most, down 44%, a reflection of the sector having one of the lowest average weekly office attendance requirements. These companies are most likely to reduce office square footage over coming years. Industries that have seen an increase since the end of 2019 include manufacturing and transportation, which are up 7%, retail trade is up 6% and finance and insurance are up 4%.
The survey also revealed that small space requirements for 10,000 to 20,000 square feet have increased by 7% as of this April. The request for larger requirements of 50,000 to 100,000 square feet, however, fell by a whopping 38%, followed by demand for 100,000-plus square feet also falling but by a slightly lower but still significant 36% number. This trend offers advice to building owners and leasing personnel looking to sign vacant space. For a win-win, they might consider dividing available square footage to sign leases and meet companies’ smaller needs. In other words, small is the new big.