The office sector has been struggling to stay afloat. During Q4 2022, the news was a “give-back” of space, resulting in an increase in office sublet availability. Three months later, Avison Young’s Q1 2023 Office Market Report noted that “mounting financial services disruption,” including the collapse of Silicon Valley Bank and other banking acquisitions, had caused a temporary pullback in demand for office spaces.
Lee & Associates’ Q1 2023 Office Overview reported that corporate users have continued reducing their footprints by giving back more space to add to available inventory while occupiers are being cautious with cost-cutting opportunities as seen from layoff and hiring freeze announcements which have cooled down growth in office-using employment. JLL’s Q1 2023 Office Outlook further explained how this decline is due to corrections among key growth industries along with large scale activity delays and diminished pipeline of new requirements as tenants exercise caution amid inflationary pressures, increased interest rates tight labor markets and economic uncertainty .
Analysts also pointed out bank failures causing concern over available capital along with higher costs of labor impacting construction projects negatively; debt maturities were another major issue leading analysts at Avison Young predicting foreclosures on properties originated before 2021 especially those held by institutional landlords located within gateway markets . However , conservative lending standards may help mitigate some risks associated with rapid interest rate increases according JLL analysts .
Moving forward into 2024 , Cushman & Wakefield anticipate vacancies should stabilize depending on job recovery ; faster recovering markets will see positive absorption much sooner than others while declining construction should help rebalance supply – demand relationship when sublease vacancy levels peak according JLL analysts . Additionally , Avison Young believes leasing activity will increase towards end of year but still not reach pre – pandemic levels whereas JLL notes stable employee headcounts might necessitate renewed expansion for companies lacking sufficient space or unable expand current one due employer cost cutting measures
