Sublease Space Weighing Office Market Down

Office vacancy rates have risen significantly since the pandemic hit. Yardi Matrix, Santa Barbara, Calif., reported one big reason for the spike: nearly every market has seen sublease space available jump.

The firm’s National Office Report said the pandemic’s economic turmoil and increased remote work explain some of the vacancy increase. And some markets saw a glut of ill-timed new supply hit just as the economy faltered. “But a big factor is that nearly every market has seen large spikes in the amount of sublease space available,” the report said.

Yardi Matrix said 20 of the 30 large markets it studied saw total available sublease space more than double over the last year. The largest increases were in Sacramento, which saw a 420 percent jump in sublease space, and Boston with a 379 percent increase.

Before COVID-19 only seven of the top 30 markets had sublease rates above 1 percent, but today 20 of them have more than 1 percent of all space listed for sublease and seven large markets exceed 2 percent, the report said. Among the highest sublease rates: San Francisco with 4.4 percent and Seattle with 3.7 percent.

“With firms reducing space and eyeing hybrid work models, demand for office space will have to be buoyed by job creation,” the report said. “While office-using jobs have performed better than the labor market as a whole during the pandemic, these sectors lost jobs in April for the first time since the pandemic began last year.”

The Bureau of Labor Statistics said professional and business services, which represent the largest of the office-using sectors, lost 79,000 jobs in April. “We think [this trend is] most probably a blip, but if not, the implication is disconcerting,” Yardi Matrix said.