Rise of remote work means demand for office space could be permanently lower for some companies
JPMorgan started marketing 700,000 square feet of office space in lower Manhattan earlier this year
JPMorgan Chase & Co., Salesforce. com Inc. and PricewaterhouseCoopers are among the major firms looking to unload big blocks of office space, the latest sign that remote work is hurting demand for this pillar of commercial real estate.
Large companies typically sign office leases for a decade or longer, giving them few options for reducing their footprint beyond trying to sublease floors to other tenants. At the end of 2020, 137 million square feet of office space was available for sublease across the U.S., according to CBRE Group Inc. That is up 40% from a year earlier and the highest figure since 2003.
While sublet space increases during every recession as struggling businesses look to cut costs, firms typically add office space when the economy picks up again. But this time many of the companies ditching real estate are doing well financially; they say they need less space because they plan for more employees to work at least part time from home even after the pandemic is over.
That raises the prospect that demand for office space could be permanently lower at some companies, much like the rise of e-commerce has been driving down demand and rents for street-level retail.
This flurry of subleasing activity is already causing fresh headaches for landlords. Office rents for more expensive space, including concessions, fell around 17% over the past year in New York and San Francisco and 13% nationwide, according to real-estate firm JLL.
Sublease space usually comes with an additional 25% discount, said David Falk, president of the New York tri-state region at real-estate services firm Newmark. And since firms can sublease on short notice, rising sublease availability can serve as an early indicator of the true state of the office market.
The speed at which sublet availability has been rising is “astonishing,” said Phil Ryan, director of U.S. office research at JLL.
Some companies are merely testing what they can get by subletting and may ultimately decide to keep their space, brokers say. But by adding to office supply when there are few takers, they are helping push down rents across cities and at times could compete for business with their own landlords.
JPMorgan started marketing 700,000 square feet of office space in lower Manhattan earlier this year. That is the largest block of space available for sublease in Manhattan, according to real-estate services firm Savills Inc.
PricewaterhouseCoopers and Yelp Inc. have also listed space in New York for sublease, brokers say....
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