After months of bleak data, the U.S. office market has some good news.
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Overall office leasing increased by 11.6% in the second quarter, the biggest quarterly jump since Q2 2021, when coronavirus vaccinations were distributed to the general public for the first time, according to JLL research first reported by Bloomberg. Net absorption remained negative and sublease availability still grew, but both trends decelerated compared to the first quarter.
The leasing boost may reflect increased confidence in office usage, with workplaces in June posting their best foot traffic numbers since before the pandemic, Placer.ai reported. Though the first half of this year saw office foot traffic down 39% from the same period four years ago, in June the difference was 35%, up 3.8% compared to May.
In the past few months, language from employers has gotten steadily tougher regarding their preference for staff to work in person, The Wall Street Journal reported. Anecdotal reports from executives and hiring firms about remote work resulting in decreased productivity now have empirical support from government statistics.
In the first quarter, productivity decreased 4.3% in the nonfinancial corporate sector, according to Bureau of Labor Statistics survey data. Output in that sector decreased 1.9% despite a 2.5% increase in hours worked across that time frame. That is an acceleration of a trend, as total productivity decreased 2.2% in the 12 months ending with Q1.
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In order for the return-to-office push to start moving the needle on the overall health of the asset class, the largest office users would need to resume making significant commitments. To that end, leases over 100K SF rose 10% in Q2 after hitting a 10-year low in Q1, JLL reported.
Considering the depths to which the office market has sunk, the positive indicators in Q2 aren't enough to declare a recovery officially underway, JLL Research Manager Jacob Rowden told Bloomberg. Office values continue to deteriorate while some markets break vacancy records.
The 41.9M SF of leases signed in Q2 — not including coworking — was an 11.2% year-over-year decline, as last year's second quarter represented the post-pandemic peak before the U.S. economy took a turn for the worse, JLL found.
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