Coworking Poised to Overtake Tech as Top Office Leasing Sector in 2019, Says JLL
CHICAGO — The U.S. office market registered 34.8 million square feet of leasing activity larger than 20,000 square feet during the second quarter, according to JLL’s latest Office Outlook report. This continues the established absorption trend of 30 to 35 million square feet per quarter.
Among office-using sectors, tech and coworking remain dominant, having both exceeded the 10 million-square-foot mark halfway through the year and representing 31.1 percent of all activity year-to-date.
The year-to-date gap between tech and coworking narrowed even further in the second quarter as WeWork, Spaces and other coworking operators continued to rapidly expand. At the current rate of growth, coworking is likely to be 2019’s largest driver of office leasing.
Consolidation and mergers-and-acquisitions, combined with a severe lack of skilled employees, have tempered expansion potential for tech companies, according to JLL. About 58 percent of transaction volumes in the tech sector represented growth or expansion. In comparison, expansion as a share of tech leasing activity routinely reached 75 to 80 percent in 2016, 2017 and early 2018.
Densification and office space efficiency are still weighing on legal, consulting and other professional services firms, although active preleasing and relocation is boosting total activity from these users.
JLL’s report concludes that the U.S. office market continued its solid expansion in the second quarter, with sustained leasing velocity and broadbased macroeconomic growth leading to 23.3 million square feet of occupancy gains, a healthy 0.8 percent increase in asking rents and further demand for new product, as more than 62.1 million square feet of supply will deliver over the next four quarters alone.
Looking out on the horizon, office tenants will find a more flexible environment opening up over the short term, although the potential for oversupply remains subdued as a pullback in construction starts will scale back the development pipeline gradually beginning in 2021.
— Staff Reports