The struggles faced by the office sector in the wake of COVID-19 may finally be easing. Reports from the fourth quarter of 2020 showed that net absorption in the U.S. office market had reached its highest level in some time, with positive trends seen in leasing activity and rental rates despite ongoing challenges with new supply and capital markets, according to JLL’s U.S. Office Market Dynamics.
Colliers’ U.S. Office Market Statistics Report also noted a decrease in vacancy due to a lack of new construction and buildings being converted for other uses.
Lee & Associates North American Market Reports added that nearly one-quarter of under-construction projects are now being built for owner-occupiers, further contributing to less new construction coming online.
Analysts at Lee & Associates explained that this sector is reaching an inflection point as employers begin revising their pandemic workplace policies, which is expected to have a positive impact on demand for office space going forward. This sentiment was echoed by JLL and Cushman & Wakefield’s United States Office MarketBeat reports which also highlighted a decline in available sublease space as another factor driving improvement.
JLL analysts added that certain industries such as technology, finance, and legal firms have stabilized post-COVID-19 and are now expanding their office footprints again – leading to higher leasing volumes overall.
However, while most tenants still prefer newer buildings with amenities included – Cushman & Wakefield noted that with fewer options available due to shrinking construction pipelines – occupiers are starting look at lower quality properties instead.
Looking ahead towards 2025 though there seems cause for optimism according JLL analysts who forecast continued growth driven by strong demand from large users along with an increase trend towards tenant requirements favoring more traditional offices spaces over remote working arrangements.
Meanwhile,Cushman & Wakefield researchers predict peak vacancy levels will occur around mid-2025 thanks largely stronger fundamentals combined smaller pipeline upcoming developments.This should also bode well for new product performance as older,obsolete properties may require significant investment or be converted to other uses. Additionally, downtowns and central business districts may need to reassess their real estate mix in order to remain competitive in the changing office landscape.
