Office Tenants Are Leasing Much Less Space

Early data shows that office users favored smaller footprints in 2020. The trend supports theories that office demand would shrink in response to widespread remote work policies that sprouted during the pandemic.

Last year, the 100 largest office lease transactions totaled 29 million square feet, 32% lower than in 2019, according to research from CBRE. These deals accounted for 19% of total office leasing activity. Lease renewals accounted for 43% of the top lease transactions. This was increase over renewals in 2019, which is likely due to tenants taking a pausing on office leasing decisions during the pandemic. Overall, office leasing decreased 36% last year.

The top 100 office lease deals primarily took place in Manhattan and Seattle, with Manhattan and Washington DC accounting for 40% of the total square footage of office leases. Seattle, Boston, Houston and Atlanta were the other top markets for office leases, accounting for 37% of the top 100 lease deals.

Technology companies and the government and non-profit sector each accounted for 18 of the top 100 leases. Tech leases totaled 6.8 million square feet, while government and non-profit companies accounted for 4.7 million square feet of the top leases. And, technology, life sciences and energy sectors accounted for 84% of total leases in the top leasing markets noted above. While tech was a driver of leasing in 2020, activity was still down more than 50% for the sector last year. All industries saw a drop in leasing activity with the exception of business services, which saw a 7% increase in average lease size.

Whitley Collins, Global President of CBRE Advisory & Transaction Services, anticipates that activity likely will perk up in 2021 as the vaccines roll out and the economy improves, but in the meantime “companies will map out their long-term office strategies with new emphasis on determining the most efficient use of workspace with more employees working flexibly from multiple locations.”

Indeed, most experts anticipate a long-term reduction in office usage due to the pandemic. In December, Upwork’s Future Workforce Pulse report predicted that the number of remote office workers would double over the next five years, increasing to 36 million workers or nearly a quarter of the workforce. Prior to the pandemic, only 12% of the workforce worked remotely. Currently, 56.8% of Americans are working from home, at least part time, and 41% of workers are working from home full time.

Company policies are also changing due to the pandemic. A survey of companies conducted by S&P Global Market Intelligence found that 64% of companies plan to keep remote work policies following the pandemic. As a result, 32% of companies plan to reduce their office footprint as a result—identical to the reduction in office square footage last year, according to the CBRE report. Smaller companies are more likely to keep remote work policies. Companies with fewer than 1,000 employees said that 100% of the workforce would work remotely going forward.