Net Office Absorption is Now Trending Positive in Majority of US Metros
In Q3 net absorption turned positive in 56% of the metros Colliers tracks, up from one-third in Q2.
Net absorption for US office product is trending positive in more than half of all major US metros, in a sign that changes are coming for the beleaguered sector.
Colliers data for Q3 shows that net absorption has turned positive in 56% of the metros the firm tracks, up from one-third in the second quarter. The metric is also inching toward positive territory nationally, with net absorption clocking in at 3.2 million square feet nationally. That’s the first time the national office market has put up positive absorption numbers since the first quarter of 2020, prior to COVID-19.
The onset of the pandemic resulted in a cumulative 153.1 million square feet of negative absorption over the last five quarters, including a record low of negative 46.1 million square feet in Q1 2021, Colliers’ Stephen Newbold says in a new analysis.
Newbold notes that three metros posted over one million square feet of positive absorption last quarter: Atlanta (2 million square feet mostly concentrated in the city’s Midtown submarket), South Florida (almost 2 million square feet, with Miami accounting for 859,400 square feet of that total) and New York (1.3 million square feet, including 870,435 square feet of positive absorption in Manhattan). Notably, it’s been two years since Manhattan last saw positive absorption.
Leasing demand has ticked up as of late in New York City, with submarkets like SOHO/NOHO and Meatpacking/Hudson Square and Midtown South prompting KPG Funds to predict an imminent surge in leasing activity for the next few quarters. KPG’s Q3 RSSI Index results for Q3 show that every Manhattan submarket had more tenant demand than in the first quarter. New tenant demand was up 64% in Midtown South alone this year.
“These micro submarkets continue to massively outperform other submarkets and are on pace to have more demand than supply,” Greg Kraut, CEO of KPG Funds, said earlier this week. “Office demand figures serve as an indicator of future leasing activity.”
Gross leasing volume approached 40 million square feet in Q3 for the first time since the onset of the COVID-19 pandemic, according to JLL research. Other markets posting positive absorption numbers last quarter include Boston, Dallas and Seattle, and second-tier markets like Austin (846,910 square feet), Nashville (590,690 square feet), Salt Lake City (385,745 square feet) and Las Vegas (289,320 square feet), Newbold says.