The hits keep coming for the U.S. office market. The COVID-19 pandemic and recession put even more pressure on the sector during Q3 2020 than the previous quarter, forcing office absorption according to a level not seen in nearly 20 years.
During the third quarter, national office absorption totaled negative 33.5 million square feet, according to Colliers International. This is the lowest total in almost 20 years, surpassing the negative 25.9 million square feet seen at the height of the Global Financial Crisis (GFC) in Q1 2009.
Negative absorption over the past six months stands at a cumulative 47.1 million square feet, already more than half of the 92.4 million square feet seen during the GFC, which spanned eight quarters.
Depending on the length and severity of the current economic downturn, this total could be surpassed. And, unlike Q2 2020, where losses skewed heavily toward downtown markets, there was an almost equal amount of negative absorption in the suburbs in Q3 2020, according to Colliers.
Ten metro office markets posted negative absorption of over one million square feet in the third quarter, led by New York at negative 10 million square feet, of which nine million square feet took place in Manhattan. Other metros with significant losses included Los Angeles (3 million square feet), Boston (2.8 million square feet) and Dallas (2.6 million square feet.)
This decline in occupancy, coupled with the flow of sublease space to the market, is driving up vacancy rates. The U.S. office vacancy rate now stands at 12.6%, an increase of 70 basis points in the third quarter. While this is still comfortably below the record peak of 16.3% seen at the height of the GFC, the third quarter increase is the largest to take place since Q1 2009.
Colliers predicted that the office sector will continue to be challenged over the next 12 months. However, the firm is hopeful it could stabilize in 2022.
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