Office tour activity is surging, according to Cushman & Wakefield, but whether that foreshadows an actual demand spike soon is still uncertain.
COVID-19 was the wettest of blankets for office space searches, pushing tour activity to 65% below pre-pandemic levels. This year, however, has seen a bounce-back for property touring: Activity increased every month in the first quarter of the year, and tours have grown back between 80-90% of pre-pandemic levels from March through June.
In many metros around the country, those tours are bearing fruit. In Washington, D.C., for example, the number of lease proposals for office space in March, April and May have already sprung back to pre-pandemic heights. The question is, then, whether the increase in tour activity translates into a tangible demand increase for space.
According to Cushman & Wakefield, the answer so far is, well, yes and no.
Despite the big touring gains, overall net absorption remained negative in the second quarter, per Cushman & Wakefield’s data. It marked the fifth straight quarter of negative net absorption, as well as the fourth quarter of net absorption between -36 and -41 MSF. But Cushman & Wakefield also noted that tour activity has begun to positively impact leasing activity even though net absorption has yet to show it.
New leasing and renewals, for example, both jumped quarter over quarter — 18% and 7%, respectively — between Q1 and Q2. New leasing, in particular, was stronger than in any of the four quarters preceding Q2, with the four-quarter rolling total of new leasing up 11 MSF in the second quarter, the largest quarterly jump since the first three months of 2017.
When, then, can we expect to see this leasing activity starting to move the absorption needle? Twenty-eight percent of new lease square footage signed in the first half of the year was scheduled to be occupied before the end of June. Nearly half, however, is slated for move-in during the second half of the year, with 30% in the third quarter and 18% in the fourth. Another 16% is scheduled for occupancy in the first half of 2022, with the other 8% more than a year away. Cushman & Wakefield, then, is forecasting that negative absorption peaks in the middle of this year before turning the corner into positive territory in the second half of 2022.
While the worst days of office real estate’s pandemic doldrums appear to be in the rearview, Cushman & Wakefield’s numbers suggest, we’re still currently only seeing the first seeds of a fuller recovery being planted. The real payoff, at least in terms of seeing occupancy levels on a substantial rebound, may yet be months out.