Sublease space declined nationwide in the third quarter of 2021, ending a seven-quarter trend of increasing square footage catalyzed by the pandemic and resultant shift to remote work.
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Manhattan, San Francisco, Oakland, Austin and Charleston saw the largest declines in sublease space in the third quarter of 2021, according to a new report by Cushman & Wakefield.
C&W researchers found that sublease office inventory decreased in more than 50% of North American markets last quarter. It declined by more than 100K SF in 20 markets, and in Manhattan and San Francisco it dropped by more than 1M SF.
The decline is a good sign for the office market, which struggled to retain tenants during the coronavirus pandemic. By May 2021, the total amount of available sublease space in the U.S. and Canada was higher than its peak during the Great Recession, according to Cushman & Wakefield data.
The primary driver of the decrease in the third quarter came from companies agreeing to take on space from other companies at a steep discount, according to the report. Less often, businesses removed their own sublease space from the market after reaching greater clarity in their post-Covid-19 office plans.
Downtowns are benefiting from the sublease bounceback. Many central business districts suffered during the pandemic, with cities like Washington, D.C., and Chicago reaching record or near-record high downtown vacancy rates. In 2020, 46% of the North American sublease space added was in CBD submarkets.
But last quarter, 83% of the overall decline in sublease inventory occurred in CBDs, the report found, indicating businesses' interest in returning to downtown office space.
While the trend shows signs of a recovery for the market, it is only a small start. Overall, the decreases posted add up to a 0.8% decrease in sublease inventory across North America quarter-over-quarter.
Earlier this year, office brokers acknowledged that the nature of leasing office space was changing. NAI Global President Jay Olshonsky told Bisnow that the market will most likely return after a few years, much as it did after the financial crisis.
"We have a long, far way to go before it’s normal," he said.
CORRECTION, DEC. 16, 9 P.M. ET: A previous version of this story misspelled Jay Olshonsky's name. It has been updated.
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