How office leasing fared during the coronavirus pandemic: exclusive data

Sarah Paynter
·Reporter
·3 mins read
Companies signed leases for 53.4% less office space (or 24 million square feet) in the second quarter, according to JLL.
Companies signed leases for 53.4% less office space (or 24 million square feet) in the second quarter, according to JLL.

Offices have sat mostly empty during the coronavirus pandemic, as 54% of Americans work from home. A new study quantifies the damage on the U.S. office market.

Almost 15% of U.S. office space is now tenantless. There was 14.2 million more square feet of unleased office space than there was in the first quarter — the biggest stall since the Great Recession in 2009, according to a new report released Thursday morning by Jones Lang LaSalle, a Chicago-based commercial real estate services company.

“In any cyclical downturn, you see a drop in leasing volume [new leases signed]. But this is a very big drop — you don’t usually see drops that large that fast,” said John Gates, chief executive officer, markets, U.S. and Canada for Jones Lang LaSalle.

Companies signed leases for 53.4% less office space (or 24 million square feet) in the second quarter, compared to the first quarter, the study found. Companies have delayed making commitments during the pandemic until uncertainty abates, said Gates.

The largest losses were in New York City, San Francisco, Houston and New Jersey. High rates of infection plus an already-shifting trend away from cities dampened these large office markets.

“Leasing fell more precipitously in those markets… There was already a slowdown in leasing activity in transportation [commuter] markets,” said Gates.

Tenants are also taking longer to negotiate favorable terms with landlords, said Gates. Asking prices for rent only fell 0.2% in the second quarter, but it is a tenant’s market — and real rent agreements (after negotiations) have fallen closer to 10%-15%, said Gates. Rent prices are expected to continue to fall until a treatment or vaccine alleviates the U.S.’s economic downturn.

“Historically rent continues to fall until a period of economic recovery and job creation,” said Gates.

Office leasing dropped more than 50% in the second quarter. Data and graphic by JLL Research.
Office leasing dropped more than 50% in the second quarter. Data and graphic by JLL Research.

The end of the office?

Experts like Warren Buffett warned that if the pandemic triggers a permanent shift to work-from-home jobs, the office real estate market could be in trouble.

In fact, the largest deal of the quarter was a downsize — the Pacific Gas and Electric company (PG&E) consolidated their 2 million square feet of office space in the San Francisco area into a still-impressive 910,000 square feet in Oakland, California.

Microsoft and Walmart Labs each signed leases for over 100,000 square feet in northern Virginia, but the lack of enthusiasm from other firms was so great that Northern Virginia still had more vacancy than in the first quarter.

And TikTok added 232,000 square feet in Times Square to its New York City offices, but New York City was still hit hard by new vacancies, with an additional 1.1 million square feet of unclaimed office real estate compared to the first quarter.

Still, Gates said he expects the office market to fully recover after the pandemic, as companies lease space and redesign offices for social distancing. Only 6% of CFOs plan to have half or more of their workers stay remote after the pandemic, and the market already showed some signs of a rebound in June, according to the report.

“Before the pandemic, we were moving to densification — more people in less space. We could see a leveling off of that trend as a result of the pandemic, and we may even turn back the other way,” he said.

Sarah Paynter is a reporter at Yahoo Finance. Follow her on Twitter @sarahapaynter

Read the latest financial and business news from Yahoo Finance

Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, SmartNews, LinkedIn, YouTube, and reddit.

More from Sarah:

The office apocalypse is not here, yet

Commercial real estate won’t be a distressed asset: Marcus & Millichap CEO

How the coronavirus will change office spaces

More From Yahoo Finance

  • Berkshire releases latest quarterly holdings

    Yahoo Finance’s Julia La Roche joins The Final Round to break down Berkshire Hathaway’s quarterly holdings report, revealing a new position in Barrick Gold Corporation and a reduced stake in JPMorgan shares.

  • ‘Investors need to be prepared’ for a ‘hard landing’: John Grace

    John Grace, Investor’s Advantage Corp. President, joins The Final Round panel to discuss his thoughts on the market, what impact a new stimulus package could have, and where investors’ should be looking in such a volatile market.

  • Tesla gains on Morgan Stanley, Bank of America upgrades

    Tesla shares finished in the green on Friday, extending its gains for the week, following two surprising upgrades. The first came from Morgan Stanley’s Adam Jonas, who raised his price target on the stock to $1,360 and boosted his rating to equal weight, on “increased conviction” in Tesla’s ability to unveil a suite of capabilities on its upcoming Battery Day. Similarly, Bank of America upgraded its investment rating from underperform to neutral and raised its price target from $800 to $1,750, as it thinks Tesla’s "growth" story will support the stock.

  • Judge rejects Uber, Lyft bids to delay reclassification

    On Thursday a California judge dismissed requests from Uber and Lyft asking for more time to appeal his decision which would force the companies to classify drivers in their largest market as employees.Yahoo Finance’s Alexis Keenan joins The Final Round to break down the details.