EXCLUSIVE: CBRE Reports Improved Office Demand In Half Of Major U.S. Markets

Researchers with CBRE are touting the nation’s steady pace of office market recovery as a win given economic uncertainty around the ongoing pandemic — though the emergence of the omicron variant could temporarily muddle the picture in the new year.

The firm’s November Pulse of U.S. Office Demand report, provided early to Bisnow, found minimal change in activity levels month-over-month, with two of three indicators used to gauge recovery falling only slightly and the third seeing no change.

“The story varies from market to market, but there’s a clear group of markets that are beginning to see momentum building,” said Nicole LaRusso, CBRE’s senior director of research and analysis and lead author on the report.

Boston continues to lead the nation in terms of recovery. The amount of space sought by office tenants in Boston climbed 23% over pre-pandemic levels in November, and leasing activity improved by 38 points, according to the report. Dallas-Fort Worth and Los Angeles also saw improvement month-over-month, with both markets experiencing an uptick in leasing activity.

For the first time since the start of the pandemic, six of the 12 major U.S. markets analyzed in the report saw the amount of space sought by companies approach or exceed pre-pandemic levels. This implies that company leaders are not yet ready to trade their physical footprint for fully remote work.

“The fact that people haven’t returned to the office yet in great numbers does not equate to companies deciding that they don’t need office space,” LaRusso said.

Several of those same markets also saw upticks in tenants seeking space, indicating a consistent stream of office interest, LaRusso said.

“There is a pipeline of demand that is continuing to grow, so even as [those office markets] lease [space], it doesn’t deplete the well,” she said. “That is an encouraging sign.”

LaRusso said the sluggish recovery of some markets could be driven by industry-specific sentiments around the return to the office. Hesitancy among San Francisco’s pervasive tech industry, for example, is likely behind that market’s six-month decline in the amount of space sought by companies, she said.

Despite improvement in six markets, overall leasing activity fell by two points in November, landing squarely at pre-pandemic levels of 2018 and 2019. Available sublease space also climbed by one point, with only four markets seeing their sublease index levels drop in November.

“This is a big challenge markets have because there is a lot of supply, and demand is improving, but it’s going to take a while for that demand to catch up,” LaRusso said. 

The latest surge in omicron cases could affect the stability of the office market in the short term, LaRusso said. But future plans for an eventual return to the office will likely stay in place as companies become less reactive to the emergence of new variants, she said.

“I think we can expect the omicron numbers to get worse before they get better, and I’m sure that will have an effect to some extent on what we see in the market probably in January and maybe even February,” she said. “But the long-term plans that companies are making, I think we will start to see them mostly stay the course.”