Office Leasing Is Up 50% From Its Covid-Era Trough

Article originally posted on Globe St. on January 12, 2022

Pre-COVID average quarterly leasing volume totaled around 59 million square feet since 2016, while last quarter’s figures clocked in just shy of 40 million square feet.

While total office leasing remains 34% below pre-COVID levels, activity is up more than 50% from the lowest point observed during the COVID crisis, back in 2020. Pre-COVID average quarterly leasing volume totaled around 59 million square feet since 2016, according to a new analysis from JLL, while last quarter’s figures clocked in just shy of 40 million square feet.

The US office market has also recorded three consecutive quarters of leasing volume growth, led by five Big Tech companies that have expanded their footprint by a collective 9 million square feet since the onset of the pandemic.

Sun Belt markets continue to outperform gateway cities, according to JLL, which tracked a 30% performance difference between Sun Belt cities and other large markets. The former have benefited from expansionary leasing activity that’s been concentrated on hub-and-spoke models, and JLL experts say labor availability and cost-of-living factors are now key for tenant site selection plans.

Despite the pressure gateway cities are facing, however, “they are likely to reaffirm their position as talent magnets in 2022,” JLL analysts predict.  Class A and trophy office properties in cities like New York City are retaining value, and Colliers CEO Gil Borok recently told CNBC that those assets have remained resilient despite a perceived flight to suburban markets.

“Perhaps that’s bold, because it’s really not a clear pathway at the moment,” Borok told CNBC. “Every time it clears it seems to cloud—but I think investors are taking, just like in the stock market, a long term view. We will eventually beat this pandemic and once we do then those offices have value. They may be used a little differently than they were…but nevertheless they have value.”

JLL also observed a flight to quality assets as tenants target amenity-rich buildings to entice their workforce back to the office. JLL estimates a 12% performance gap between differentiated and commodity assets: “The office market is oversupplied with commodity office space,” analysts note. “Landlords should differentiate their assets by investing in in-demand amenities, such as outdoor spaces, food & beverage offerings, hospitality services and tenant lounges.”

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