Office-using employment growth continues to expand and sublease availability rising at an increasing rate throughout 2022 are among the trends featured in Newmark’s United States Office Market Overview.
Office-using employment has maintained a consistent pace of recovery over 2022, measuring 1.3 million jobs over pre-pandemic levels, according to the report.
Net-new jobs can provide a counterweight to the negative demand effects from remote work, making this trend more significant.
The growth continues to expand, but the rate has slowed in most large markets, most notably in the largest gateway markets other than Boston, Houston, and Silicon Valley. It is falling in Dallas, Los Angeles, Miami, New York, Washington, D.C., San Francisco, and Chicago.
Sublease Space Availability Increased Throughout 2022
As for sublease availability, it has risen at an increasing rate throughout 2022, measuring 7.7% growth between Q3 and Q4 last year, according to Newmark.
National square footage available for sublets is at an all-time high of 201.3 million square feet, mostly due to the long-term adoption of remote and hybrid schedules.
Rising concerns about recessionary pressures are encouraging some firms to again reassess the utility of their current real estate, the report said.
“As economic headwinds grow, particularly in tech-focused markets, sublease availability rates could continue to rise in 2023,” the report read.
Asking Rents Holding Value
On the positive, asking rents largely held value since the pandemic began, according to Newmark.
“Some rent compression is being experienced among major markets, but secondary and tertiary markets continue to appreciate,” it said. “Sublease rents have been holding relatively flat for much of the last three years, which more visibly exhibits the impact of low demand. As a result, the spread between sublease space and direct space has widened to all-time highs.”
Tech and Biotech Trimming Expenses
Finance/insurance has seen an increase in its share of leasing activity among large-block users in 2022 while it has fallen in technology and biotech, industries that are “closely examining expenses and trying to trim costs.”
Leasing activity growth slowed nationwide in 2022 as economic pressures led firms to again delay real estate planning initiatives.
This was particularly true in the technology industry. Although the tech and biotech industries account for the majority share of large-block leasing activity, economic hardships are causing many of these firms to closely examine expenses and trim costs.
Across all sectors nationwide, leasing activity was sluggish, indicating a slowdown in the momentum that had been gained in 2021 in some secondary and Sunbelt markets.
Companies are more attracted to higher-quality buildings, which are outperforming the overall market.
“Although four- and five-star buildings account for only 38.3% of inventory, their assets have captured 52.8% of activity,” according to the report. “However, activity has been trending downward over the past year and is approaching levels not seen since 2020.”