Available Sublease Inventory Continues to Decline

The US office market is showing continued signs of life as the amount of available sublease inventory declined for the third straight quarter.

Office sublease availability now stands 7.6% below its pandemic peak observed in the second quarter of 2021 and currently accounts for 2.2% of total office inventory, or 122.4 million square feet, according to Cushman & Wakefield data. The firm also noted that improvement in this metric was “widespread,” with quarter-over-quarter drops observed in 42 of the 89 markets it tracks.

The markets with the biggest declines in sublease availability year over year include  San Francisco (2.7 msf), Boston (1.7 msf), Greater Seattle (1.7 msf), San Mateo County (1.4 msf), and Dallas-Fort Worth (1.2 msf).  

Gateway cities, which also suffered the biggest increase in sublease availability between the onset of the pandemic and the Q2 2021 peak, also saw the biggest sublease inventory drop. Gateway markets had 29.8% of sublease inventory prior to the pandemic, hit a high of 35.6% in the second quarter of last year, and now account for 32% of total sublease availability nationwide.  Four of the six major gateway cities Cushman tracks now have lower proportions of sublease space than the national average as well.

Sublease inventory in CBD submarkets has also decreased, declining by 11.7% over the last three quarters. Suburban sublease space has declined by 4.7%.

“The decreasing amount of sublease space on the market is a good sign that the office market is recovering,” said David C. Smith, Head of Global Occupier Insights at Cushman & Wakefield. “The current trajectory matches the path of previous recessions. After increasing for seven quarters starting in late 2019, sublease availability has begun to steadily recede.”

The office market has also shown improving vacancy metrics as of Q1. Overall office vacancy rates in central business districts ticked up nearly 420 basis points over the past seven quarters, according to Colliers, while suburban counterparts posted a rise of nearly half that.  Tenant requirements have also been on the rise as of late while more companies appear to be in the market for new space, both forward-looking indicators that CBRE’s Nicole LaRusso said in January “bodes well for the office market recovery soon regaining momentum.”