Office Outlook –
After an unprecedented pause in Q2, market dynamics are rapidly shifting as sublease space mounts
Following an unprecedented stoppage in market activity during the second quarter as a result of stay-at-home orders and uncertainty brought on by the COVID-19 pandemic, the U.S. office market is seeing an upheaval in fundamentals.
- Nearly 55% of leasing came in the form of renewals on a national basis, with half of major industries firmly in defensive mode and staying put, increasingly in 3-5-year terms.
- Give-backs across markets led to a 28.9-million-square-foot decline in occupancy (the largest single-quarter drop on record) and a subsequent surge in vacancy to 16%.
- The sublease market – a key barometer for the office market – is now larger than during the dot-com bubble and could feasibly reach 150 million square feet of availability by the end of 2020.
Moving forward, conditions will remain highly volatile and rapidly changing, dictated by the trajectory of broader economic indicators and public health conditions. The relative stability of office-using employment sectors will provide a degree of buffer, combined with growing concerns over productivity losses and threats to collaboration, innovation and workplace culture as the current work-from-home period is drawn out.
Q3 2020 U.S. Office highlights
Q3 2020 U.S. Office statistics by market
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**The health, policy, economic and financial disruption stemming from the COVID-19 pandemic continue to create a fluid and evolving environment for all real estate sectors. Uncertainty remains around market performance and implications will differ by market and sector.