The amount of office space offered for sublease in the 10 largest U.S. office markets has increased by 12% since the COVID-19 pandemic forced a shutdown of local economies in March, according to a new report from CBRE.
Office space offered for sublease increased by 6.1 million sq. ft. in those 10 markets since March to total nearly 59 million sq. ft. in June, according to CBRE’s analysis. Ian Anderson, the firm's Americas Head of Office Research, said that space offered for sublease is a highly fluid and difficult-to-track since companies put space on the market or withdraw it on a daily basis.
“But the general increase in space offered for sublease amid the pandemic is to be expected," said Ian Anderson, CBRE’s Americas Head of Office Research. We believe that the second quarter was the low point for the market with office leasing activity down by more than 40% from a year earlier – and that we’ll begin to see a gradual recovery.”
Sublease additions have been uneven across markets. Markets with large concentrations of technology companies like San Francisco, Austin, Downtown Chicago and Boston have seen significant growth in sublease space. Tech companies tend to keep extra space to accommodate quick expansion but then seek to shed it in downturns.
Other markets like Manhattan and Washington, D.C. have seen only moderate additions of sublease space over the past three months. Occupiers there are taking a wait-and-see approach to the long-term impacts of COVID-19 on office usage and are concerned about how long any sublease offerings may remain on the market.
In Dallas-Ft. Worth and Houston, less severe declines in employment may have limited additions of sublease space thus far.
COVID-19’s full impact on the U.S. office market was evident in Q2 2020 with the largest quarterly drop in demand since 2001, according to CBRE.
The 21.5 million sq. ft. of negative net absorption was on par with the Q2 2009 trough level during the Great Recession and should similarly be the most severe quarterly decline during this downturn. It also was nearly half of Q3 2001’s record 41.2 million-sq.-ft. decline in absorption.
Regardless of varying local market dynamics, more sublease space is expected to favor tenants.
Read more about sublease space at CBRE.
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