Office occupancy rates are closer to the pre-pandemic normal than many may suspect, according to JLL’s recently released Q3 2022 U.S. Office Outlook report. Following the post-Labor Day push to return to the office, occupancy rates reached a post-pandemic high in the third quarter of 47 percent, up from 35 percent at the same time last year. JLL forecasts that office occupancy rates nationwide should reach 65 percent by the first quarter of 2023.
JLL’s report notes that workers were never in the office 100 percent of the time before COVID changed the world in March 2020. The average top of the scale for office occupancy pre-pandemic was between 70 and 80 percent. But before office owners celebrate too much, other findings from JLL are direr. Gross leasing activity nationwide declined 3.6 percent from the second quarter, and effective rents have plateaued 6 percent below pre-pandemic levels. The rising costs of capital will also increasingly hurt office landlords’ ability to provide large rent concession packages.
Despite the challenging economic environment, JLL notes that remote work appears to be losing steam as the labor market tightens. A more robust return to the office could be a shot in the arm for the market. But the main takeaway from the report is that the persistent flight to quality trend means more occupiers will continue to relocate to smaller, higher-quality offices. The market for high quality office space has led to nearly 90 million square feet of positive net absorption in new vintage offices since the onset of the pandemic. A record volume of lease expirations in 2022 and 2023 and significantly declining renewal rates will continue to drive a robust market for high-end office space and tougher times for older properties.