Still struggling. That’s the best way to describe the U.S. office market in the early days of 2023. A look at the Office Outlook report published by JLL in the fourth quarter of 2022 gives plenty of evidence of the uncertainty hitting the sector.
The numbers for the office sector continue to highlight its challenges. For instance, JLL reported that leasing activity in the U.S. office sector fell 10.8% in the fourth quarter to 40.7 million square feet.
On the brighter side, though, last year did feature a stronger start, lifting 2022 office leasing volume 15.1% higher than what the United States saw in 2021.
Net absorption numbers were weak, too. In the fourth quarter of last year, the U.S. office sector saw net absorption of negative 12.5 million square feet. For the year, the sector’s net absorption came in at a negative 37.4 million square feet. Again, though, this was an improvement from 2021, which saw negative net absorption of 59 million square feet.
According to JLL, the slowdown in activity was felt mostly among large-scale leases, which tenants are delaying as they deal with uncertainty over how many of their employees will continue to work from home. Just 42 office transactions of more than 100,000 square feet were signed in the fourth quarter, the lowest total since the first quarter of 2021 and more than 50% below the pre-pandemic quarterly average.
During these uncertain times, sublease activity continues to rise. JLL reported that tenants continue to place space on the sublease market to reduce their costs. Sublease vacancy rose by 6.4 million square feet in the fourth quarter to a record 136.6 million square feet.
In another bit of better news, JLL reported that because of the scarcity of high-quality direct office space, landlords have been able to slightly increase office rental rates. JLL says that in the fourth quarter of last year, U.S. asking office rents ticked up by 0.3% to $38.86 a square foot. In not-as-good news, JLL says that this increase has been offset by concession packages that have soared past all-time highs.