Sublease Inventory Declining For First Time Since Start Of Pandemic

The inventory of subleased space in the North American markets has declined for the first time since the start of the pandemic with the amount of space shrinking in more than half of 91 markets, according to Cushman & Wakefield.

North American vacant sublease inventory fell 0.8% in the third quarter compared to the second. The US dropped 1.5% during the period from 132.4 million square feet to 130.4 million, mostly from subleases being signed by new occupiers.

See the Top 10 Markets That Have Posted the Greatest Decline in Sublease Space 

However, there have been instances of occupiers removing large chunks of their own sublease space from the market as they develop clearer workplace strategies for a post-COVID-19 workforce, said David Smith, Cushman & Wakefield’s Head of Global Occupier Insights.

The decline was led in Central Business District markets which accounted for 83% of the shrinkage.

The CBDs led the surges in vacancies last year where 46% of North American sublease space added in 2020 was in CBD submarkets, even though CBDs account for only a third of total office space inventory.

Despite the decline, Cushman & Wakefield reported there is still a significant amount of space in the market.

“In Q3 2021, there are 35 North American markets with 1-plus million square feet of office sublease vacancy and 22 different markets with 2-plus million square feet,” said Smith.

The decline followed the second quarter’s vacancy inventory ranking as the slowest rate since the pandemic began.

In fact, the 5.9% increase over the first quarter is the lowest quarter to quarter growth rate since Q3 2019, according to the Cushman & Wakefield in North American Office Sublease Space Mid-Year 2021 report.

The absolute amount of sublease inventory has surpassed the two previous recessions. However, as a percentage of total office inventory, the Q2 2021 total of US sublease space still represents a smaller proportion of total office inventory than during the Dot-Com Recession (2.4% in Q2 2021 vs. 2.9% in Q2 2002).

History shows that after the previous two recessions, sublease space increased for approximately two years. Q2 2021 marked the seventh straight quarter of positive sublease space growth dating back to Q4 2019.