The US Office Market Is Showing Signs of Stabilization

GlobeSt. – Leasing in some areas is above pre-pandemic levels.

The office rental market is “primed for rebound,” according to a JLL’s new Q2 2021 office outlook.

“You need to shift your focus around which indicators are most relevant about the health of the market,” Scott Homa, senior director of office research at JLL tells “It’s a very unique sort of downturn.”

The report pointed to “falling unemployment, rising consumer spending, greater mobility, and improved vaccination rates.”

Leasing activity was up in gateway markets by 48.4% compared to the first quarter of 2021. Gross leasing activity was up 28.7% between the first and second quarter and hit 34.7 million sq. ft, the first time since the beginning of the pandemic that it broke 30 million sq. ft.

“The fact that we have certain sunbelt markets, like Atlanta and Miami, seeing leasing above pre-pandemic levels hits on the point that there have been some migrations and shifts of strategy,” Homa says. “This has been a relatively long trend over the previous few years of jobs and corporate relocations going to low tax jurisdictions.”

Another good sign is rents. “The fact that face rents have been able to maintain relatively steady, all things considered, is encouraging,” Homa says. “You haven’t seen a major correction in face rents, that landlords especially at the top end of the quality spectrum are able to maintain and hold rates. There’s a greater sense of optimism.”

But, still, the quarterly leasing activity was still down by 41.6% from pre-pandemic levels. There is still a long trek to return to normal.

A positive indicator, subleasing activity, is an example of the improving but still far from normal market. In the second quarter, 5.4 million sq. ft. of subleased space was removed, with 80% being reoccupied by the original tenants and the remaining fifth taken up by new tenants.

And yet, there is still 158 million sq. ft. of sublease space still available.

Part of that, though, may be financial engineering on the part of corporations. “They may be using the pandemic and their real estate strategy in a way that they can better manage their P&L,” Homa says. By putting sublease space on the market, a company gets to take an immediate write-off and blame the problem on the pandemic.

“They can finesse their real estate expenses, which tends to be the second largest item” after labor, Homa says. While he doesn’t think that type of activity is a majority, it’s difficult to say what the percentage is.