By Ashley Fahey – Editor, The National Observer: Real Estate Edition, The Business Journals
Signs are emerging that companies are feeling more confident about their office-leasing decisions, prompting a bump in touring and leasing activity in several U.S. markets.
In New York City, there was about 18.6 million square feet of office-tenant activity on average in 2018 and 2019, according to data from CBRE Group Inc. (NYSE: CBRE). At the lowest point of the Covid-19 pandemic, that plummeted to 3.8 million square feet.
Right now, the firm is tracking 26 million square feet of office requirements in New York, said Paul Myers, vice chairman at CBRE who represents tenants in commercial real estate lease negotiations in New York City.
"The numbers are astounding," Myers said. "I don’t see it abating."
Since the pandemic, most of the office-leasing activity nationally has been driven by professional-services firms and companies in industries like law and finance — which returned to the office on a more regular basis, and sooner, than other industries. Technology, which had been the biggest driver of office-leasing activity right before the pandemic, has as an industry scaled back its leasing activity significantly since 2020 and has embraced remote work.
But in a metro like New York, office tenants in industries like tech, retail, media and entertainment — which had all been largely absent from the office market in the pandemic's aftermath — are back in a big way, Myers said.
The uptick in leasing demand may be coinciding with a few broader factors, including a more-certain economy and a bigger push by companies for their employees to be back in the office.
Amazon.com Inc. (Nasdaq: AMZN) made a big splash last month when CEO Andy Jassy said all employees would be required to be in the office five days a week starting in January. The company, however, is not alone in wanting to get more people back to the office more regularly.
"We’re hearing from more and more users of office space ... that they’re a little fed up with the uncertainty," said Michael Lirtzman, head of U.S. office leasing at Colliers International Inc. (Nasdaq: CIGI). "Not only is it an issue of office space, but they can’t plan investment, nor can they plan rent-expense projections, until they have certainty in terms of what they need in terms of their space."
Commercial real estate tech company VTS Inc., which tracks office leasing demand in several major U.S. markets, this summer said office demand hit bottom in late 2022 or early 2023. It made that determination in July of this year based on what it called a substantial period of stability and growth within the office market, including 12 consecutive months of year-over-year growth in tenant demand, and supporting economic factors.
The firm's VTS Office Demand Index, or VODI, saw a 17% increase at the end of the second quarter from the same quarter a year earlier and a 34% increase from when it bottomed out in December 2022 and January 2023.
Themes that have been prominent in the U.S. office market since the pandemic — companies taking less square footage and moving into trophy office towers — are still happening, Lirtzman and others say.
The uptick in leasing activity also will not erase the significant headwinds facing the U.S. office market, which continues to contend with record-high vacancy that's expected to continue to climb and a mountain of debt backed by office towers coming due in the coming years.
But companies today overall have more confidence in their leasing decisions, which may include signing a lease with a longer term compared to the one- and two-year extensions that were hallmarks a couple of years ago.
It's created a more-positive third quarter for some U.S. markets than what's been seen since the pandemic. Among markets tracked by Colliers, Manhattan and Dallas had significant positive absorption, at 3.5 million square feet and a little more than 1 million square feet, respectively.
While the national market isn't seeing the levels of absorption that were common in 2018 and 2019, Marianne Skorupski, director of national office research at Colliers, said certain markets, like some Sun Belt sites, are still proving to be attractive to office users post-pandemic.
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