Despite a relatively strong end to the fourth quarter, office investors are still likely to remain on the sidelines in primary markets as rent remains flat and outpaced by inflation and high borrowing costs.

A new analysis from research economist Scholastica Cororaton of the National Association of Realtors predicts that secondary office markets will continue to drive demand in 2022 as they did last year. The fourth quarter saw 14.5 million square feet in absorption, an improvement over Q3's 5.6 MSF. But "given the massive amount of space given up during 2020 Q2 through 2021 Q2, office occupancy is still down by 117.8 million square feet as of 2021 Q4," she says. 

Citing CoStar data, Cororaton notes that "secondary markets drove the absorption of office space in the second half of 2021," led by Atlanta (3.3 MSF), Austin (2 MSF), San Jose (2 MSF), Dallas-Fort Worth (1.9 MSF), Houston (1.3 MSF), Seattle (1.3 MSF), Palm Beach (1.1 MSF), and Nashville (1 MSF).