August Office Space Offered For Sublease Declines

CBRE, Dallas, said office space offered for sublease registered its first monthly decline in August since the pandemic started.

Sublease space totaled 160 million square feet in the 53 largest U.S. markets in August, down 1.5 percent from July, CBRE said in an investment brief. Sublease space amounts have fallen from their peak in nearly three quarters of those markets.

“This is a good sign for the office market and the economy in general, though it still will require a lot of activity and time to materially reduce the large volume of sublease space that has been put on the market during the pandemic,” said Julie Whelan, CBRE Global Head of Occupier Research.

Whelan noted other indicators such as new lease signings have also improved in recent months. “But the improvement of the overall office market should really gain traction after the sublease backlog has been pared meaningfully,” she said.
 
Even markets with high concentrations of sublease space, including San Francisco, Seattle and Manhattan, have seen subleasing decline since early this year. Companies offer sublease space for rent by others when they do not need it but remain contracted to pay for it.
    
Sublease space currently represents just over 3.5 percent of all office space in the 53 markets that CBRE tracked, compared to 2.1 percent prior to the pandemic. The report cited several factors for sublease inventory decline, including:

–Companies are bringing less space to market for sublease. The amount newly offered for sublease in this year’s second quarter is 62 percent less in square footage than at the peak in third-quarter 2020.

–Occupiers are removing more sublease space from the market by leasing it to new users or withdrawing it for their own use. Sublease space accounted for 25 percent of new office-leasing activity in the third quarter, up from 10 percent before the pandemic.

In a separate report, Pulse of U.S. Office Demand, CBRE reported sublease space in the 12 largest U.S. markets declined in both July and August.