Office demand is showing early signs of stabilizing in the United States.
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(Bloomberg) — Office demand is showing early signs of stabilizing in the United States.
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Rental rebounded 7.7% in the second quarter from the first three months of the year, according to Jones Lang LaSalle Inc. Jacob Rudin of JLL.
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“It’s an appreciable improvement,” Rudin, president of the US Bureau of Brokerage Research, said in an interview. “But it is too early to say this is a starting point for a sustainable recovery.”
Rental gains are a welcome sign for a sector that has taken a beating in recent years. The rise of remote work, as well as layoffs, has prompted companies to cut back on office space, leaving many landlords with dismal prospects. That has weighed on valuations with office prices down 31% from their 2022 peak, according to Green Street.
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The office market is still under pressure. And 40.4 million square feet (3.75 million square meters) of space rented in the second quarter was down 14% from the same period last year and below the pre-pandemic average.
More office space also became available for rent during this period, bringing the vacancy rate to nearly 21%. Tenants who renew leases or move in typically keep 20% less space for offices, Rudin said, though this is partially offset by demand for more meeting rooms.
However, promising signs emerged in the second quarter as tenants increasingly sought spaces greater than 100,000 square feet, Rudin said. Tech companies, which have been putting up a lot of space for sublease, have also slowed this down, which has helped the market.
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He said, “We are seeing green shoots.” “The overall picture is generally improving.”
Office market changes have varied greatly by geographic region. Requested rents increased 7.3% in Miami and nearly 18% in West Palm Beach sequentially as businesses continued to request space in South Florida.
Rudin said New York has benefited from a culture of office work in person and from a diverse mix of industries wanting space in the city. Sublease space decreased in the second quarter while overall vacancies increased with the opening of 3.9 million square feet of new inventory, including Two Manhattan West, developed by Brookfield Corp. Close to Hudson Yards, and offices in the newly renovated Google Building at 550 Washington St.
In San Francisco — a market grappling with job disruption, telecommuting and a downturn from tech companies — office availability, which includes vacant space and sublease, was 34% of total inventory. Rudin said the vacancy rate is unlikely to start contracting until at least 2024. But the city is starting to see more demand coming from AI companies.
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