The softening in U.S. office market fundamentals, seen in Q4 2022, accelerated in the first quarter of 2023. As a result, net absorption remained negative and occupancy losses increased, while vacancy rose at a faster pace, and sublease space hit a record high.

Colliers Insight
Stephen Newbold
U.S. Office Market: The Past Two Years

Here’s a summary of the key trends:

Is a market correction ahead? Firms continue to recast their property strategies. Tenant downsizing has become the norm, with space reductions of at least 20% to 30% being implemented by large occupiers. While existing lease obligations will temper the pace of such changes, the net result will be sustained upward pressure on vacancy.

Pending a resurgence in demand, vacancy rates and sublease availability are set to continue to rise over the rest of 2023, and into 2024, placing increased pressure on rents. Retrenchment in the finance, government and tech sectors, which were key drivers of leasing volume pre-Covid, could compound this trend.

With repricing already occurring on the sales side, it seems only a matter of time before it takes place in the rental market driven by the triple-hit of downsizing, sublease space and rising vacancy rates, as landlords become increasingly aggressive to secure tenants.

Where’s the upside? Performance and demand differentials are expected to widen. Bifurcation should be most evident between space class and age. Opportunities should become more selective, but quality will win out as firms seek the optimal work experience to retain and attract the best talent and bring employees back to the office.