The office sector has been struggling for some time. During Q4 2022, there was an increase in office sublet availability due to space “give-backs”. This trend continued into the first quarter of 2023 with corporate users reducing their footprints and adding to available inventory, according to Lee & Associates’ Office Overview. Cushman & Wakefield’s U.S National Office MarketBeat reported that occupiers have become more cautious as they look for cost-cutting opportunities and this is beginning to show in the labor market with layoff announcements increasing and employment growth cooling off.
JLL’s Office Outlook attributed this decline in leasing activity primarily due three factors: corrections among key growth industries, large-scale activity delays and a diminished pipeline of new requirements from tenants exercising caution; all compounded by inflationary pressures, increased interest rates tight labor markets and economic uncertainty according Avison Young analysts . Bank failures were also noted as cause for concern when it comes available capital which is further impacting construction costs along with debt maturities leading potential foreclosures on properties originated before 2021 – especially those located within gateway markets said Avison Young analysts .
While JLL believes leasing activity will increase during the remainder of 2023 but still not reach pre pandemic levels , Cushman & Wakefield anticipate vacancies should stabilize by 2024 depending on job recovery; faster recoveries will see positive absorption much sooner while declining construction should help rebalance supply demand relationship once vacancy levels peak explained JLL analysts .
