Intelligent Investment

Tenant Inquiries Rise but Sublease Challenges Remain

CBRE Pulse of U.S. Office Demand

November 22, 2021 8 Minute Read

Read the full report and data for all 12 markets

The CBRE Pulse of U.S. Office Demand showed modest improvement in October with a notable uptick in new leasing requirements, while leasing activity and sublease availability held relatively steady.

What is the CBRE Pulse Report?

To gauge the pace of recovery, CBRE has created three indices for the 12 largest U.S. office markets—Atlanta, Boston, Chicago, Dallas/Fort Worth, Denver, Houston, Los Angeles, Manhattan, Philadelphia, San Francisco City, Seattle and Washington, D.C. Using CBRE data, these indices measure office market activity each month and provide early indications of when and where momentum in office demand may be shifting. These metrics—space requirements of active tenants in the market (TIM), leasing activity and sublease availability—provide a clear picture of office demand amid the COVID-19 pandemic.

October Findings

The U.S. Tenants in the Market (TIM) Index increased by 4 points in October to a level of 86, erasing its drop this summer from the resurgence in COVID infections. The U.S. Leasing Activity Index fell by 1 point to a level of 95. Six markets saw improvement month over month, while the other six had either no change or a decrease.

The biggest challenge remains the surplus of sublease space, with the U.S. Sublease Availability Index increasing by 1 point to a level of 195 – a modest reversal after a slow but steady improvement since the index peaked at 207 in June.

Methodology Note

There is one significant change to the Pulse this month: the San Francisco geographic area has been revised from previous reports. From this month on, San Francisco covers only the city itself and no longer includes the peninsula.

The Pulse historical trend for San Francisco has been amended accordingly and this October issue supersedes any data presented in prior Pulse reports. Office demand in the city of San Francisco has made less progress toward recovery than in the peninsula, so this current assessment of San Francisco’s market recovery has been downgraded from prior reports.

U.S. Average Performance Index

Figure 1: Indexed Average Performance of Sublease Availability, TIM, and Leasing for the Top 12 U.S. Markets

Source: CBRE Research, October 2021.

October Demand Recovery by Market

Atlanta’s market recovery is gaining momentum, closing rank with Boston—the perennial leader in COVID recovery. Houston, Manhattan, Washington, D.C., Seattle and Denver all improved their rankings, while Los Angeles, which had been an early bright spot in the recovery continued to struggle in October, along with Philadelphia and San Francisco.

Figure 2: October Office Market Recovery Scale, Top U.S. Markets

Image of timeline

Source: CBRE Research, October 2021.

Tenants in the Market Index

Figure 3: Indexed Square Footage of Tenant Requirements Compared with 2018/2019 Average

Source: CBRE Research, October 2021.

The U.S. TIM Index increased by 4 points in October to a level of 86, returning to the positive momentum in tenant requirements that had been building before the COVID delta surge sent occupiers back to the sidelines. The index is back on par with its peak from June and July. It is especially notable that the TIM index is rising after several months of improved leasing activity, suggesting that more occupiers are entering the market and offsetting the conversion of previous TIMs to signed leases.

TIM recovery looked good across nearly all markets in the study, with nine of the 12 seeing growth in October. Boston (134) remained well ahead of the pack, buoyed by strong demand from life sciences tenants and increasing demand from office users in the technology and finance sectors.

Manhattan (98), Denver (93), Houston (89) and Washington D.C. (78) all had notable monthly gains of between 8 and 10 points, while Seattle (96), Atlanta (93) and Los Angeles (71) had more modest gains of between 2 and 4 points. The TIM Indices for Philadelphia (57) and Chicago (55) – the two cities where TIM recovery has been the slowest – were both flat, while Dallas/Fort Worth (87) saw a modest decline but maintained a relatively healthy level.

Nine of the 12 Pulse markets have reached TIM levels that are more than 75% of their pre-pandemic baseline, demonstrating improving market demand across much of the U.S.

Figure 4: October 2021 TIM Index–Top 12 U.S. Markets

Image of data chart

Source: CBRE Research, October 2021.

TIM Index methodology note: CBRE tracks the total square footage of requirements from active tenants in the market, with minimum requirements of 10,000 sq. ft. The TIM Index compares the total monthly TIM requirements to a pre-pandemic baseline, which is the average of TIM requirements recorded by CBRE in 2018 and 2019. The index level for the baseline is 100. In most cases, when tenant requirements are given as a range, the index uses the minimum square footage., However, Seattle records TIM using the average requirement within the tenants' size range, while Philadelphia uses the maximum square footage.

Leasing Activity Index

Figure 5: Indexed Monthly Leasing by Market Compared with 2018/2019 Average

Source: CBRE Research, October 2021.

CBRE’s U.S. Leasing Activity Index fell by 1 point in October to a level of 95. The performance of the Boston market was a significant factor in this slight decline, obscuring the improved leasing activity in many of the other Pulse markets. Boston’s Leasing Index had shot up to 210 in September on the back of two very large leasing transactions but fell by 52 points in October to a level of 158 – still the highest level of any market in our study. Excluding Boston, the U.S. Leasing Index would have increased by 5 points in October.

Six markets saw improved leasing indices in October. Atlanta (155) had another strong month, ranking second with a gain of 8 points. Atlanta’s Leasing Index has improved dramatically over the past six months after bottoming out at 38 in April. Houston (117) and Washington, D.C. (102) also improved in October, with both of their leasing indices surpassing pre-pandemic levels for the first time. Leasing indices also improved in Seattle (84), Denver (82) and Philadelphia (64).

Chicago’s Leasing Index (80) held steady, while Manhattan (91), Dallas/Fort Worth (73) and San Francisco (62) all had modest monthly declines ranging from 1 to 4 points. The Los Angeles Leasing Index (74) fell by 9 points in October to half of its peak level of 147 in June.

As of October, four markets – Boston, Atlanta, Houston and Washington D.C. – have exceeded their pre-pandemic leasing levels, while four others – Manhattan, Seattle, Denver and Chicago – are at least within 75% of their pre-pandemic baselines.

Two markets – Los Angeles and Dallas/Fort Worth – have fallen back below the 75% mark, while the remaining two markets – San Francisco and Philadelphia – have yet to recover to 75%.

Figure 6: October 2021 Leasing Activity Index – Top12 U.S. Markets

Image of data chart

Source: CBRE Research, October 2021.

Leasing Index methodology note: Leasing activity includes all new leases, expansions and renewals of 10,000 sq. ft. or more that close each month. The Leasing Activity Index uses a rolling three-month average of leasing activity. Most markets the weighted 20% for the current month, 50% for the previous month and 30% for two months prior. For New York and Boston, where more accurate leasing data is available by the end of each month, the weights are 50% for the current month, 30% for the previous month and 20% for two months prior. The monthly rolling average is compared with a pre-pandemic baseline, which is the average monthly leasing activity between 2018 and 2019. The index level for the baseline is 100.

Sublease Availability Index

Figure 7: Indexed Sublease Availability by Market Compared with 2018/2019 Average

Source: CBRE Research, October 2021.

The overhang of sublease inventory remains the biggest challenge in most U.S. markets. The U.S. Sublease Index increased by 1 point in October to a level of 196 after declining in each of the three previous months from its peak of 207 in June.

After a surge in September, subleasing activity slowed in October, particularly in five markets where the sublease index ticked up each month. San Francisco had the highest increase in its sublease index (15 points) to a level of 474 and has the country’s largest glut of sublease space. Dallas/Fort Worth (159) saw an 8-point increase, while Washington, D.C. (136), Boston (151) and Los Angeles (160) had modest increases of between 2 and 3 points.

Atlanta improved the most, down by 8 points to a level of 156. Chicago (186), Manhattan (189), Philadelphia (218) and Seattle (250) all saw modest improvement of 1 or 2 points. Atlanta, Denver, Manhattan and Seattle have all seen consistent improvement over the past three months, with Seattle and Atlanta seeing the biggest drops of 47 and 43 points, respectively.

Figure 8: October 2021 Sublease Availability Index – Top 12 U.S. Markets

Image of data chart

Source: CBRE Research, October 2021.

Sublease Index methodology note: Sublease availability measures the total square footage of sublease space available for occupancy. The Sublease Availability Index compares monthly sublease availability totals with a pre-pandemic baseline, which is the average amount of sublease space available in 2018 and 2019. The index level for the baseline is 100.

Note: In contrast to the Leasing and TIM Indices, a higher score on the Sublease Index is considered undesirable as it reflects an increase in available sublease space.

Office Demand Likely Will Improve

Office-using employment growth is traditionally a harbinger of future leasing activity. Recent strong job growth suggests future momentum for the office market, particularly as consumer and business confidence increases. Barring another COVID resurgence, the office market appears on increasingly firmer footing heading into 2022.

Related Insights