Glimmers of hope in the U.S. office market
Looking for signs of hope in the U.S. office market? Here’s one: The country’s office sector notched positive net absorption in the fourth quarter of 2021, the first time this has happened since the start of the COVID-19 pandemic.
1100 BROADWAY IN NASHVILLE, IS AN EXAMPLE OF THE NEW-CONSTRUCTION OFFICE PRODUCT AT THE CENTER OF THE SECTOR'S FLIGHT TO QUALITY. (PHOTO: HASTINGS ARCHITECTURE.)
That glimmer of hope comes courtesy of JLL’s Fourth Quarter U.S. Office Market Overview. According to JLL’s report, leasing velocity in the office sector increased by 9.2% in the fourth quarter of last year. That boosted 2021 office leasing volume 14.6% above 2020 levels.
This doesn’t mean that the U.S. office market is back to normal, though. Even with the positive absorption seen in the fourth quarter, leasing activity in the last three months of 2021 was still only at 71.3% of pre-pandemic levels.
The fourth quarter leasing numbers, though, are a positive sign. They come after six quarters of occupancy losses in the office sector totaling 152.9 million square feet of negative net absorption.
And in another sign of the office sector’s struggles, JLL reported that concessions for CBD Class-A space are still at significantly elevated levels. The fourth quarter report says that rents for this type of space are still 7% below pre-pandemic norms. JLL predicts that this figure will improve only modestly in the coming months.
When tenants are filling up new space, it’s often in newly constructed buildings. JLL pointed to a flight to quality in the office sector, as companies take advantage of concessions to move into office spaces that they might not have been able to afford before the pandemic hit.
According to JLL, net absorption since the onset of the pandemic surpassed 51 million square feet in newly built office space.
The impact of this can be seen in vacancy rates. JLL said that in the fourth quarter of last year, the vacancy rate in office product delivered before 2015 was 19.7%. In office product delivered after 2015, the vacancy rate stood at 18.9%.
In the Midwest, Nashville remained one of the stronger office markets. JLL said that office leasing activity here in 2021 was 73.1% of what the city saw in 2019. That might sound like a negative, but this actually ranks Nashville’s office sector as one of the better-performing ones during the pandemic. Consider that in Chicago, office leasing activity in 2021 was only 33.2% of what it was in 2019.
