- Companies opting for relocation and expansion rather than lease renewal
- CBRE analysis links the trend to a recovery in long term confidence
- The office market resilience provides "reason for optimism"
With confidence making a recovery in 2021, companies in big US markets have shown an inclination to make long-term real estate decisions.
Many office-based companies in major US markets chose to expand or relocate rather than renew their existing leases in the first three quarters of 2021 according to a new analysis from CBRE.
CBRE’s Global Head of Occupier Research Julie Whelan believes companies are aiming to attract employees back into the office.
“Many companies are now are leasing more and better space to entice employees and new hires into the office. And many are expanding into new markets,” she said.
CBRE’s reported that expansions accounted for 24% of office leasing transactions by square footage in primary markets – Manhattan, Boston, Chicago, Washington, D.C., Los Angeles and San Francisco. This is up from 17% in the final three quarters of 2020 when the pandemic was taking effect.
Similarly, relocations were favoured while renewals declined in 2021 compared to 2020 as shown by the figure below.
Office Leasing Activity by Transaction Type in Primary Markets
Secondary markets, which comprise of 13 cities including Atlanta, Dallas-Fort Worth, Philadelphia and Seattle, reveal similarly promising data. These markets also reported fewer renewals and more expansions.
The secondary batch of markets recorded a significant jump in new-to-market office transactions. This activity was mainly recorded in the South-Central (Texas and surrounding states) and the Southeast states.
“The uptick in new tenant activity in secondary markets indicates more companies are seeking to expand into less expensive markets with high quality labour pools,” said Ms Whelan.
Office Leasing Activity by Transaction Type in Secondary Markets
Source: CBRE Research, Q3 2021
Reason for optimism
The data reflects companies having regained confidence and becoming more comfortable with making long term real estate commitments, despite the impacts of the Delta variant.
“While the ongoing impact of COVID-19 variants on activity remains hard to predict, office market resilience amid the Delta variant in 2021 provides reason for optimism.”
CBRE Global Head of Occupier Research Julie Whelan
Looking forward, CBRE’s report suggests that while the Omicron variant may cause some disruption, new leasing activity is likely to maintain momentum in 2022.
