Cushman & Wakefield: U.S. Office Market Outlook Begins to Show Reasons for Optimism
CHICAGO — The road ahead will be bumpy for the U.S. office sector, but there is light at the end of the tunnel, says Cushman & Wakefield. The Chicago-based commercial real estate brokerage recently published Part III of a series of snapshots entitled “U.S. Office Sector: the Road Ahead in 2021,” which are focused on the economy and office trends. What follows is a synopsis of those predictions in the third segment.
The path of the virus is central to the office sector recovery, asserts Cushman & Wakefield. As of early February, roughly 11 percent of the U.S. adult population has received at least one dose of the vaccine. Additionally, the seven-day moving average of vaccines being administered was trending up and the number of vaccinations was outpacing the number of new confirmed daily infections.
Most baseline forecasts assume the vaccines will be widely distributed by mid-2021 in most advanced countries and in some emerging markets. In the U.S., it is currently assumed that full herd immunity will be reached by September or October of this year.
Undoubtedly, the pandemic directly impacted office leasing fundamentals in 2020. In the U.S., there was 104 million square feet of negative absorption last year, which was more severe than the entirety of the Great Financial Crisis, according to Cushman & Wakefield. Office vacancy rose from a pre-pandemic 12.9 percent to 15.5 percent by year-end.
Citing studies and surveys, Cushman & Wakefield says that most companies do plan to return to the office when it is safe to do so. Most will follow a hybrid model of both remote and in-person working, at least for the foreseeable future.
The economy is expected to continue creating office-using jobs at a faster rate than most other sectors. The U.S. is forecast to create 5 million office-using jobs during this decade, up from 4.6 million last decade.
In parts of the world where the virus has been more contained, the office sector has started to rebound. For example, office space absorption in the Asia Pacific region turned positive in the second half of 2020.
Considerations moving forward
Cushman & Wakefield mapped out some themes for office users to consider as they look to 2021 and beyond. First, the rollout of the vaccine will take time and the return to office will be slow. Additionally, most companies are still in a wait-and-see mode. Nearly one-third of all renewals last year were for one year or less — “that’s triple the norm,” says the brokerage.
Cushman & Wakefield warns companies of buying into the rumors that businesses are fleeing central business districts and large cities. “It’s premature to make big bets one way or the other,” says the brokerage. “There are worse strategies than wait-and-see.”
The majority of the movements appear to be micro and not macro, meaning people and businesses will be more likely to relocate within the same city and less likely to relocate to a different city. Additionally, there is some migration to the sunbelt occurring, “but that’s nothing new.”
Although rents are expected to decrease nationally as tenants start to make more decisions and take advantages of the oversupply in the second half of 2021, Cushman & Wakefield predicts that rents will bottom in most markets in the first half of 2022.
Despite the beginning of 2021 continuing to be difficult, there are clear signs that the world is now beating the virus and therefore economic outlooks are being revised upwards, says the brokerage. U.S. real GDP is expected to grow in the 4 to 5 percent range in 2021.
“A strong pent-up demand dynamic is forming, and it is becoming increasingly clear that the worst of the pandemic’s impact on the economy, and by extension the office sector, is largely behind us.”
— Kristin Hiller