The ongoing recovery of the 12 largest U.S. office markets lost momentum in August 2021 amid renewed concerns about the spread of COVID-19 variants, according to CBRE’s monthly “Pulse of U.S. Office Demand” report. However, one lagging measure – availability of office space for sublease – improved for the second consecutive month.
CBRE’s monthly report tracks three indices of office market activity: Tenants-in-the-Market (TIM) activity, which entails companies actively seeking office space; leasing activity in the form of finalized lease agreements; and sublease availability. In August, the first two indices registered slight declines after several months of gains.
Conversely, the sublease index fell in August for the second straight month, a positive sign although backlogs of space offered for sublease remains sizeable. For each index, a reading of 100 equates to precrisis conditions of 2018 and 2019.
CBRE’s analysis of the indices based on August’s activity identified Boston and Atlanta as the markets farthest along in their recovery, with Atlanta posting a strong gain in leasing activity for the month. Los Angeles ranks just behind those two due to a falloff in leasing in August after a strong run of gains for much of the year. In the next tier of markets, Dallas-Fort Worth, Seattle, Washington, D.C., Manhattan and Houston have shown modest improvement.
“We saw a small to modest slowdown in tenants seeking space and for signed leases in August,” said Nicole LaRusso, CBRE Senior Director of Research & Analysis. “Transactions that were close to completion continued forward, despite the unfortunate rise in infections and related delays in return-to-the-office plans.
“The good news is that sublease availability didn’t increase in the wake of the latest increase in COVID cases,” she said. “This is welcome news, because the sublease situation is perhaps the biggest hurdle for markets to overcome on their way to full recovery.”
“We knew that the spread of COVID’s Delta variant would affect the office-market recovery, and the August index results bear that out,” said Julie Whelan, CBRE Global Head of Occupier Research. “The question is whether this is a momentary pause in the recovery or something more. It is possible that federal and corporate vaccination mandates could boost COVID-containment efforts and, by extension, nudge America’s return to the office back on track.”
A national view of the indices reveals the progress of the office market’s nascent recovery:
- The TIM Index declined by three points to 83 in August after six consecutive months of gains. Eight of the 12 markets registered slight declines in their TIM index last month. Four markets – Dallas-Fort Worth, Atlanta, Seattle and Philadelphia – notched gains. Boston’s TIM index result is well above precrisis levels, and those of Atlanta and Dallas-Fort Worth are within 10 points of regaining precrisis levels.
- The Leasing Activity Index declined to 71 in August, down from 77 in July but still well above its cyclical low of 52 from December 2020. Five of the 12 markets posted gains in leasing activity. Atlanta registered a 16-point improvement in its index from July to August, boosting it nearly to precrisis levels. Showing modest improvement were Houston, Manhattan, San Francisco and Chicago.
- The Sublease Availability Index edged down for the second straight month to 191 in August from 194 in July. This marks a slight recovery from the index’s cyclical high of 195 in May of this year. Half of the markets showed declines in their sublease indices. Seattle notched the biggest drop, whittling 24 points from its reading in August. Overall, the 191 average for this index means sublease space still is near twice its precrisis level.