Sublease Inventory Ticks Up Again in Q2
Nearly all cities saw some form of increase in sublease space for the quarter.
The amount of available sublease space ticked up incrementally in the second quarter, but there’s a spot of good news: the rate of sublease growth is still “much lower” than in the past two years.
New research from JLL reveals that at the market level, nearly all cities saw some form of increase, including Miami and Austin, where sublease inventory grew by 14.1% and 12.8%, respectively. Cities that posted declines were mostly smaller markets with “minimal development pipelines,” including Sacramento (-22.4%), Fort Lauderdale (-14.8%) and Pittsburgh (-6.0%).
“A lack of correction in sublease space and a slower bounce-back in other areas is keeping concession packages well above historic norms, particularly for longer deals,” JLL analysts note, adding that after growing for a full year, effective rents for CBD Class A space fell by 1.9% in Q2 and asking rents “barely budged” from roughly $63 per square foot on average.
“Substantial improvements in activity will need to take place for this dynamic to shift,” the JLL researchers say. They also note that the construction pipeline will likely contract further: groundbreakings were minimal outside of select cities, and the overall pipeline is now 104.3 million square feet.
“The overwhelming majority of this space will be ready for occupancy by the end of 2023, providing a critical ceiling for future vacancy,” the report states. And of this new space, a large share was concentrated in a select few major developments: Google’s 1.1 million-square-foot Bay View Campus headquarters expansion, the second phase of Boston Properties’ RTC Next development in Reston, 888 N. Douglas Street in Los Angeles (the future home to Beyond Meat and L’Oreal) and Block 38 in the South Lake Union neighborhood of Seattle.
While return-to-office plans are gaining traction nationally, few companies expect to maintain their current portfolio size. CBRE’s spring 2022 occupier sentiment survey reveals that more than 75% of respondents across those regions expect a “more regular return” to the office this year, with more than half currently establishing policies and communicating expectations to their respective workforces.