Rising Sublease Rates Boost Office Vacancy

Available sublease space more than doubled in 20 of the top 30 markets covered by CommercialEdge.

Office vacancy rates rose in nearly every market throughout the past year thanks to a combination of factors such as pandemic-induced economic uncertainty, expiring leases, extended work-from-home policies, new supply and a massive increase in sublease space. Of the top 30 markets covered by CommercialEdge, 20 more than doubled their available sublease space, with Sacramento (420 percent increase) and Boston (379 percent increase) leading the way. After reevaluating their space needs, major office tenants including JP Morgan and Experian listed hundreds of thousands of square feet within the buildings they previously occupied.

Office-using employment increased by 6.3 percent year-over-year as of April—yet office jobs are still considerably fewer than in pre-pandemic levels. What’s more, office-using sectors lost jobs in April for the first time since the pandemic began, with the professional and business services segment shedding 79,000 positions. Of the 120 markets covered by CommercialEdge, only 24 showed growth in office employment, 20 of which were in Texas and the Southeast. Southeastern markets are expected to recover more quickly than other metros, although some markets such as New Orleans (-9.1 percent) and Orlando (-6.6 percent) continue to record negative office-employment.

National average full-service equivalent listing rates clocked in at $38.32 per square foot in April, or a 35-cent increase from the previous month. The numbers rely on the quality of the assets rather than market fundamentals, resulting in increasing listing rates despite growing vacancy. Austin, for example, more than doubled its office vacancy in the past year. At the same time, new supply within the metro is listed for above-market average prices.

The active pipeline totals 161.9 million square feet of office space, with 29.3 percent taking shape in suburban submarkets. Meanwhile, more than half of the space underway is located in nine of the top markets covered by CommercialEdge. Some 236.8 million square feet is in planning stages, but shifting market dynamics and space requirements will certainly alter the pace at which these will begin to materialize. Yardi Matrix expects 191.5 million square feet will come online until 2023 and only another 61.2 million square feet between 2024 and 2025.

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