With job losses, business closures, and around 40% to 50% of office workers still working from home, office use suffered its biggest loss in Q2 2020, according to NAR's latest Commercial Market Insights report from October. The West and South regions suffered the largest losses in office use, led by San Francisco, New York, Phoenix, Los Angeles and Dallas. With a monthly pace of 100,000 jobs, employment in office jobs will only recover in the second quarter of 2022. This may seem long, but it is faster than the 4 year recovery during the Great Recession.
The west and south regions recorded the greatest loss of office use in the second quarter of 2020
Amid job losses, company closures and the fact that more than 50% of office workers are still working from home, office space occupancy fell 22.8 million square feet (msf) in Q2 2020 from levels in Q1 2020 (negative net absorption) or 0.4% of the 5.2 billion office space according to Cushman and Wakefield office data. 1
In terms of plains, the West region accounted for half of the occupied space loss (-10.9 msf), followed by the South Region (-5.8 msf), the Northeast (-4.94 msf), and the Middle West (-1.16 msf). As a fraction of the total stock of office space, the greatest loss of space was recorded in the west (0.7% of the total area) and in the northeast (0.4% of the office space), then in the south (0.3% of the total area) and most recently in the Midwest ( 0.1% of the total area).
<img src = "data: image / svg + xml; utf8,"data-src =" http://cdn.nar.realtor/sites/default/files/styles/inline_paragraph_image/public/EO-22-MSF-Office-Space-Oct-2020.PNG?itok=9XxQGFWG "class = "b-lazy" width = "890" height = "551" alt = "22 MSF office space was vacant" />
Large and technology-oriented metros will suffer major occupancy losses in the second quarter of 2020
More than a million square feet were vacant in the second quarter in San Francisco, New York, Phoenix, Dallas and Los Angeles.
<img src = "data: image / svg + xml; utf8,"data-src =" http://cdn.nar.realtor/sites/default/files/styles/inline_paragraph_image/public/October_CMI_2.PNG?itok=g9BG8CwF "class =" b-lazy "width =" 878 "height = "601" alt = "Square Foot Occupancy Loss" />
As of Q2 2020, vacancy rates are relatively low in Charleston, Raleigh, Seattle, and San Francisco (despite the large negative net absorption) at less than 10%. The major metropolitan areas with the highest vacancy rates include Houston (21.1%), NY-Brooklyn (20.3%), Los Angeles (19.6%), Atlanta (18.4%) and Chicago (18.4%) ).
<img src = "data: image / svg + xml; utf8,"data-src =" http://cdn.nar.realtor/sites/default/files/styles/inline_paragraph_image/public/EO-Office-Vacancy-Oct-2020.PNG?itok=pfrGAVV- "class =" b- lazy "width =" 996 "height =" 680 "alt =" Office Vacancy Rates "/>
The demand for sublet space – generally linked to hot / open desks or collaboration – has fallen as workers work from home and practice social distancing. The hardest hit subway areas are engineering-linked areas such as Rochester, San Francisco, New York, Austin, Salt Lake City, Phoenix, Charlotte, Seattle, Nashville, Inland Empire, and Portland.
<img src = "data: image / svg + xml; utf8,"data-src =" http://cdn.nar.realtor/sites/default/files/styles/inline_paragraph_image/public/EO-Vacant-Subleased-Space-Oct-2020.PNG?itok=I22_bEs6 "class =" b -lazy "width =" 956 "height =" 619 "alt =" Vacant Subleased Space "/>
The proportion of people in employment continues to decline, from 35% in May to 23% in September. In office-based industries, however, up to 65% continue to work from home among computers and mathematicians.
<img src = "data: image / svg + xml; utf8,"data-src =" http://cdn.nar.realtor/sites/default/files/styles/inline_paragraph_image/public/EO-Telework-Oct-2020.PNG?itok=zNV-_LOj "class =" b-lazy "width =" 898 "height =" 616 "alt =" Teleworking Rate "/>
Office use of jobs for full recovery by 2022 Q2
Jobs in office-operated industries create demand for office space. In March and April, the economy cut 2.86 million jobs in the information, financial activities and professional and business services sectors. 1.04 million jobs were restored from May to September, leaving nearly 2 million more to be restored.
In June office jobs increased by around 300,000 compared to the previous month, but in September the pace fell to 153,000. Assuming that jobs in the areas of information, finance, and professional and business services increase by 100,000 per month, the number of employees in the office-operating sectors will not fully recover until March 2022.
By comparison, the two-year recovery period is faster than the recovery from the Great Recession, when it took four years from October 2009 to December 2013 to recover to its peak in July 2007. Jobs rose by 50,000 a monthly basis over the 2010-2012 period.
The demand for flexible space will depend heavily on institutional users looking for short-term rental and ready-to-move office space, usually new businesses and small businesses that may not want to invest in large upfront costs.
While the proportion of workers who will work from home is likely to be higher than 5% before the pandemic, office density may increase due to social distancing measures. Overall demand for office space is still dependent on the discovery of a vaccine for COVID-19 as it affects business openings and closings, working from home, and office density requirements.
<img src = "data: image / svg + xml; utf8,"data-src =" http://cdn.nar.realtor/sites/default/files/styles/inline_paragraph_image/public/EO-Office-Payroll-Oct-2020.PNG?itok=UlagwZFo "class =" b-lazy "width =" 890 "height =" 558 "alt =" Office Payroll Employment "/>
1 Data source: Ken McCarthy, Cushman and Wakefield 2020 Q2 MarketBeat