US Office Outlook – Q1 2022
US Office Market Statistics, Trends & Outlook
- Phil Ryan
On the back of continued tech-sector expansion and stable sublease inventory, the market demonstrated signs of durability and resiliency since hitting a trough in late 2020. After recording net occupancy growth for the first time since the onset of COVID-19 in Q4 2021, absorption ended Q1 essentially flat, with a quarterly decline of 5 million square feet representing a modest 0.1% decline in occupancy. Utilization nudged upward in response to a rapid decline in omicron cases, coupled with the subsequent removal of almost all remaining restrictions and mandates, enabling numerous major tech, financial, legal services and other professional services firms to set clearer targets for office reentry.
At the same time, clarity surrounding hybrid arrangements has helped to bring more certainty for tenants regarding their longer-term space needs, boosting term lengths in the process. Flight to quality remains the dominant theme affecting market performance: divergence in absorption, vacancy and rents is widening between first- and second-generation product, with little sign of slowdown. This splitting of the market into two distinct environments will define tenant and investor activity alike moving forward.
Uncertainty surrounding geopolitical tensions remains, as do concerns about inflation and new shocks to supply chains, but employment and wage growth as well as consumer spending, jobless claims and investment activity remain robust and will keep demand buoyant in spite of headwinds.
Leasing activity rose by a healthy 5.4% on the back of improved clarity surrounding return-to- office timelines.
Occupancy changed little in the first quarter, while absorption in new supply since the onset of the pandemic has surpassed 61 million square feet.
A thinning construction pipeline will bring needed new space to the market, albeit pushing vacancy upward in the process.