Monthly pulse of office-market demand sees uptick in September after late-summer slump
By Ashley Fahey
Tampa Bay Business Journal
Published: Oct 26, 2021

A monthly monitor of office-demand activity showed an uptick in September after a falter the month prior, in large part because of the Delta variant.

CBRE Group Inc.'s (NYSE: CBRE) September 2021 pulse of office demand, which measures tenant-in-market, leasing activity and sublease availability in 12 major markets, generally saw improvement from August. CBRE's tenant-in-market, or TIM, index did drop one point, to 83, which CBRE said could be because of tenants that had been looking for space in August signing leases in September.

A reading of 100 in CBRE's indices for office demand is about where TIM activity, leasing activity and sublease space were at in 2018 and 2019.

Boston was a standout market in September, with a leasing activity index of 210, owing in part to a couple of major leases, such as Moderna's Inc.'s planned new headquarters being signed, said Nicole LaRusso, CBRE's senior director of research and analysis. Boston also topped the list, among the 12 markets, in TIM activity.

LaRusso said the life-sciences industry is driving a lot of tenant demand in Boston, paired with more recent growth in traditional office-leasing activity being seen nationally.

CBRE's index for leasing activity in September increased to 93, a 17-point increase month over month, owing in part to Boston's surge.

LaRusso said the numbers for October have yet to be finalized but said there's nothing to suggest activity would change course from September.

"I think, if we had been talking in July, we would’ve been very bullish on the market in the fall because we expected people to be back in the office by September," LaRusso said.

Delta, of course, altered that trajectory, although she said September's numbers signal activity is moving in a positive direction.

San Francisco, which has been hit hard by the pandemic, was the No. 2 market for TIM in September, with an index of 108, followed by Dallas/Fort Worth, at 93. Atlanta and Manhattan round out the top three in leasing activity in September, with indices of 130 and 95, respectively.

There's been an observable trend of markets that've returned to in-office work faster correlating with an increase in tenant activity, with some exceptions.

Los Angeles, for example, saw a month-over-month drop in TIM and leasing activity, which LaRusso said may be attributed to restrictions imposed by local governments in the wake of the Delta variant. Dallas and Atlanta, meanwhile, are in states that have had fewer restrictions and a quicker return to office, and are more likely to have a greater share of car commuters compared to mass-transit users, a demonstrated important variable in the return-to-office conversation.

In addition to Los Angeles, markets that include Seattle; Washington, D.C.; Philadelphia and Chicago saw a month-over-month drop in CBRE's TIM index. Los Angeles, Seattle and Philadelphia saw declines in leasing activity.

Jones Lang Lasalle Inc. (NYSE: JLL), in its third-quarter office market report, found technology continues to be the biggest single industry leasing office space, accounting for 23.6% of all deals done in Q3. Collectively, banking, finance, law firms and insurance made up 28.1%.

LaRusso said, in New York, where she is based, tech had been the dominant force in leasing for the two years leading up to the pandemic. Right now, financial services tenants are more active in that particular metro but there are requirements from tech companies in the market that haven't shown up yet in leasing statistics, LaRusso continued.

Law firms have more recently been inking office deals — and are returning to the office at a faster rate. Kastle Systems International LLC found 59.5% of law firms across the markets its tracks were physically occupying offices the week of Oct. 7., compared to 36.2% across all industries.

Savills PLC found law firms using more than 20,000 square feet leased 2.1 million square feet across major markets in Q3, the highest quarterly total for the industry since the pandemic. It was a 51% increase from the previous quarter.

Some of the biggest new office deals signed nationally in 2021 have been from law firms in Q3, such as Kirkland & Ellis LLP's 600,000-square-foot relocation deal in Chicago. JLL says that deal was the largest lease recorded so far this year.

Sublease availability also improved in September, dropping by 10 points to 181, according to CBRE's monthly office-demand monitor. It was the third consecutive month of decline but the volume of available sublease space is still 81% above pre-pandemic levels.

Some companies are pulling sublease space off the market as their return-to-office and hybrid plans solidify. But many metro areas are still grappling with an unprecedented level of sublease inventory that will take time to work through.

"The amount of sublease space that’s in the 12 markets is quire substantial," LaRusso said. "It’s the biggest challenge that most of these markets have: overcoming this glut of space that has come on in the last year-plus."