US Office On Pace to Meet 2021 Delivery Volume

The US is on track to deliver as much new office space as a year ago, according to JLL’s Q2 Office Report.

Year-to-date completions were up 11.8 million square feet to 26.5 million square feet for the year, putting them on track to repeat 2021’s more than 50 million square feet of new space.

Large and small tenants put expansion plans on hold amid macroeconomic uncertainty, leaving transaction volume relatively flat over the quarter at 47.2 million square feet.

JLL also said that flight to quality accelerated in the second quarter: since the onset of the pandemic, new supply has registered net occupancy growth of 86.8 million square feet.

The office market continued to face an everevolving series of headwinds during the second quarter, shifting from questions over return to office earlier in the year to the effects of the highest rate of inflation in decades, according to JLL’s Phil Ryan, its director of US office research.

Market Favoring Top-Tier Buildings

Joe Iacono, CEO of Crescit Capital Strategies, tells GlobeSt.com that the market is favored towards the top tier quality buildings right now.

“They are outperforming the older stock buildings that are continuing to suffer a slow bleed. In either case, concessions are up,” Iacono said. “Most major urban gateway cities are performing worse overall.”

Return to Office Remains a Factor

Peter L. Curry, real estate practice partner, Farrell Fritz, tells GlobeSt.com, said the report concentrates on the negative economic climate as the primary cause of the overall flat market in office leasing.

“While this economic uncertainty certainly fuels corporations’ reluctance to undertake relocations and expansions, other factors are also affecting the decision-making process.

“Without a clear path for the return of all employees to the office, companies are trying to plan for a future involving fully remote work or a mix of both remote and on-site employment.

“Any such future path will entail the input of wellness and sustainability officers in addition to real estate, architectural, engineering and legal professionals typically involved in office relocations and renovations.

“Companies are moving slowly to figure out the next stage of office architecture and infrastructure.  They are conducting pilot programs and seeking far greater employee focus group involvement to determine how best to meet worker expectations while maintaining profitable business operations.

“By taking more time now, companies are hoping to retain their employees and avoid making significant financial commitments that will be seen as a mistake in a few short years. This thoughtful process slows down the leasing process.  However, it should result in a healthier office marketplace overall.”

Miami, Charlotte, Des Moines are Bright Spots

Oli Farago, CEO of Coyote Software, tells GlobeSt.com, “It’s no surprise that leasing activity was flat in Q2, given the various challenges facing the office market. That said, whilst we’re still someway off the peak of 2019, things have continued to tick upwards since the onset of COVID-19 in early 2020, and this is by no means a time to panic.

“For owners and investors the opportunities are out there and it’s about identifying the bright spots in the occupier market. Places like Miami, Charlotte, Des Moines, and Minneapolis, all recorded strong rental growth last quarter. Investors and owners need to be tracking these markets closely, week-to-week, if they are going to perform well in a more challenging environment. Access to live, accurate information is more critical than ever.”