- U.S. office leasing totaled 62M SF in Q3, up 18% year over year but still 21% below pre-pandemic quarterly averages. It was the sixth straight quarter of positive net absorption.
- Vacancy fell 50 bps to 19.8%, and sublease availability dropped 21%. Class A net absorption of 9.5M SF year to date has overtaken trophy space at 7.2M SF.
- The construction pipeline is just 20.3M SF, the lowest since 2012, while concessions remain near a record $103 per SF and real rents sit 9.9% below early 2020.
U.S. office leasing totaled 62M SF in the third quarter, up 18% year over year but 21% below pre-pandemic quarterly averages, according to Newmark data reported by Commercial Observer.
It was the sixth straight quarter of positive net absorption. National vacancy fell 50 basis points to 19.8%.
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Downsizing Slows
Tenants are trimming less. Jessica Morin, head of national occupier research at Newmark, told Commercial Observer that companies are now cutting 10% to 20% of their space, versus 30% to 40% earlier in the pandemic.
About 42% of pre-pandemic leases are still in place, with the most exposure in Chicago at 53% and New York at 50%, per Newmark.
Hybrid offices still need desks, Morin said, and employers are trading up to better space to keep staff. Occupancy has steadied even though employment among office users is flat.
Quality Pulls Demand
Class A has caught up with trophy. Year-to-date net absorption is 9.5 million square feet in Class A against 7.2 million in trophy, and Class B and C losses have narrowed to 1.3 million.
Sublease availability fell 21% from a year ago. The recovery is still uneven, with gateway and Sun Belt buildings taking most of the demand, though Morin said Boston, which has seen negative absorption, is improving.
A Thin Pipeline
Construction is at 20.3 million square feet, the lowest since 2012, with a few Southern metros, Miami, Palm Beach and Dallas among them, driving new supply.
Nominal rents are creeping higher, but adjusted for the GDP deflator, real rents are still 9.9% below where they started 2020. Morin told Commercial Observer concessions remain near a record of $103 a square foot, off a $107 peak earlier this year.
Zoom Out
Newmark made a similar point in a separate report, as we noted in our look at the thin construction pipeline. Newer buildings were absorbing space far faster than older ones, with vacancy near record highs.
Why It Matters
Stable footprints turn leasing from a guessing game into a replacement cycle. That favors landlords with quality buildings, since tenants are trading up rather than leaving.
Morin told Commercial Observer the gap between leaders and laggards will keep widening.
What’s Next
With fewer pre-pandemic leases left to reset each year, Morin expects fewer hybrid-driven downsizings ahead. New supply may still pull tenants out of older space.
