CBRE Report: US Office Market Recovery Slowed In February As Leasing Activity Declined

The U.S. office market recovery slowed for the second straight month in February, though the number of companies actively looking for new space indicates that leasing activity could pick up in the coming months, according to CBRE’s monthly “Pulse of U.S. Office Demand” report.

Office-leasing activity slowed markedly in February as companies delayed decisions on long-term commitments, likely due at least in part to COVID-19’s omicron variant. Meanwhile, two other metrics held steady: Sublease availability remains at nearly double its pre-crisis amount and activity by companies looking for new space stayed at an encouraging level.

Leasing activity in Los Angeles is 12 percent above the pre-pandemic baseline. As such, Greater LA ranks No. 2 (behind Boston) and is 36 points above the U.S. average of 76. A greater share of Los Angeles leasing activity is comprised of new leases and expansions, a marked change from the short-term renewals that dominated earlier in the pandemic period.

Recent longer-term lease agreements in the Greater LA area include:

• OffWorld Inc., a space robotics company, signed a new lease at a 35,640 square-foot property formerly occupied by JPL in Altadena, Calif.
• CBRE facilitated the sale of an office building in the Little Tokyo neighborhood of Downtown Los Angeles to Buck Design.The creative agency plans to move into the 79,242 square-foot space.
• Stoggles, a maker of stylish protective eyewear, committed to creative office space in a building located in Los Angeles’ Hollywood neighborhood.
• Pasaca Capital, a private investment company focused on technology innovation, leased 26,184 square feet at The Pasadena Towers in Pasadena, Calif.

“As tenants evaluate their post-pandemic space needs, we increasingly see tenants who decisively commit to long-term leases,” said Los Angeles-based CBRE professional Natalie Bazarevitsch. “The ultimate square footage may change as may the location, perhaps a ‘hub & spoke’ model; the net result is office space utilization is still deemed necessary with many firms committing to space long term.”

She added, “As office leasing velocity increases, the flight to quality and the need for ‘market ready’ suites, for example, also are rising, especially for tenants who did not leave themselves enough time to identify and reconfigure space needs. The bottom line is we’re seeing companies needing office space.

To gauge the pace of recovery, CBRE’s monthly report tracks the three leading indicators of office market activity in the largest 12 U.S. office markets: tenants-in-the-market (TIM), which quantifies the amount of office space that companies are actively seeking; leasing activity in the form of finalized lease agreements; and the availability of sublease space.

A national view of the indices outlines the scope and trajectory of the office market’s recovery. For each index, a reading of 100 equates to the pre-pandemic levels of 2018 and 2019.

The February results of CBRE’s three indices again show Boston leading the recovery among the 12 markets, owing to its strong TIM activity. The lineup of other markets showing progress in February offered few changes from the previous month; Dallas-Fort Worth, Greater Los Angeles, Denver and Seattle led the others in recovery.

Greater LA’s TIM level in February was 67 compared with the U.S.TIM Index which registered at 89, unchanged from a month earlier. The nationwide Sublease Availability Index was unchanged in February at 196. It has hovered around that level since September 2021. Greater LA posted an increase to 172.

To read the full report, click here.