Tenants Vacate Record Amounts Of Office Space — 42M SF, By Some Counts — In Q3
Far more office tenants reduced their office space usage than leased space nationwide in Q3, resulting in massive negative net absorption for the quarter. The drop followed a similar slump in the second quarter. Different companies calculate the total differently, but they all point downward in a big way.
Cushman & Wakefield puts Q3 net absorption at negative 41.3M SF, by far the largest decline in occupancy since the company started collecting data in 1995. Absorption was negative 23M SF in Q2, making the year-to-date total well over 60M SF.
Major metros such as Boston, Dallas, Los Angeles, Midtown Manhattan and San Francisco all saw demand for office space crater, according to Cushman & Wakefield. Altogether, a record 73 markets suffered negative absorption and 14 markets saw negative absorption of 1M SF or more.
JLL calculates that year-to-date negative absorption for U.S. office space is 42M SF, and predicts that more office space will be vacated during the fourth quarter.
CBRE reported somewhat less negative absorption for the third quarter, but even so a high number: negative 33.5M SF, which the company said was the largest quarterly decline since 2001.
Negative absorption during the second and third quarters of this year combined totaled 54.9M SF, CBRE said. That is as much office space as tenants left during the entire run of the Global Financial Crisis in 2008 and 2009.
“People are realizing that remote work is working better than they imagined and saying: ‘You know what? Let’s get rid of some of our space,’” CBRE Senior Research Director Ian Anderson told The Wall Street Journal.
An additional ill tiding for the office market, according to JLL, is that sublease availability ballooned during the third quarter to 124M SF. There is also about 47M SF more space that will be available for subleasing during the fourth quarter of this year and the first quarter of 2021, the brokerage predicts.
Though the third-quarter numbers were grim for office landlords, preliminary reports of success in creating a vaccine to protect against the coronavirus boosted share prices of office-owning REITs, with investors presumably betting that some semblance of office demand normalcy will return next year.
For example, Boston Properties Trust went from $89.09 per share to $95.54 per share on Tuesday, while Hudson Pacific was up from $22.82 per share to $24.10 per share. Office Properties Income Trust gained from $21.10 per share to $21.99 per share for the day.