According to Julie Whelan, Americas Head of Occupier Research:
“It might be surprising to some that U.S. office construction has kicked back into full gear as various markets reopen their economies after pandemic-related shutdowns. More modern workplaces will facilitate new ways of working as companies increasingly shift to more of a hybrid workforce, which works from the office, home and other venues. This accelerated trend allows employees to balance working remotely with visiting the office to engage with peers.
“Within the fluid way of working, the office acts as the hub that connects widely distributed employees with their companies. It offers a place to facilitate collaboration, innovation, relationship building, and company culture. Companies that create the best environments to support a hybrid workforce and fluid way of working will have a competitive advantage in recruiting when the war for talent reignites.”
CBRE’S OUTLOOK FOR THE ECONOMY AND US OFFICE CONSTRUCTION:
- Office Construction Overview: Construction jobs are coming back in force as the U.S. economy reopens. May’s job report included a gain in construction employment of 464,000 jobs as building sites reopen. Many of those reactivated construction workers will go to job sites for the 78 million sq. ft. of offices now under construction in the 10 busiest U.S. markets.
- Addressing Concerns: Should 78 million sq. ft. of offices construction in these 10 markets be a concern at a time when many workers might opt to work remotely for at least part of their work week? Not really, and here’s why: Of the 4.5 billion sq. ft. of office space in the U.S., an average of 68 million sq. ft. becomes obsolete and gets bulldozed each year. Many new offices are built upon the sites of these demolished buildings. This gradual upgrading and modernizing of the U.S. office stock is a benefit for the 22 million office-using workers in the U.S., especially with wellness in the workplace now a chief focus.
- Manhattan: Manhattan’s 12.5 million sq. ft. of ongoing office construction spans 16 projects slated for completion over the next three years. Roughly 53 percent of that space is pre-leased. New construction and renovation projects in Manhattan are capturing most new leasing activity, dovetailing with a flight to quality among large tenants predating the pandemic.
- San Jose: Office tenants already have leased 68 percent of the 10.2 million sq. ft. under construction in San Jose. In addition, 23 million sq. ft. of projects are approved but not yet under construction in the market, and another 32 million sq. ft. of projects are in the planning stages, some of which might be delayed. Much demand stems from a shift in this market to occupiers favoring more traditional, modern office space for software development rather than the R&D and flex space previously used for hardware design.
- Washington, D.C.: Most of the 8.4 million sq. ft. under construction in Washington, D.C., is in the capital’s central business district, the Capitol Riverfront and Southwest submarkets, and tech enclaves of Reston, VA., and Bethesda/Chevy Chase, MD. Vacancy is likely to rise, but above-average preleasing activity and a slowdown in the construction pipeline will soften the impact.
- Los Angeles: The 8.3 million sq. ft. under construction in LA represents that market’s largest office expansion since the 1980s at 2.2 percent of overall inventory. Nearly half of the space under construction is pre-leased, mostly to large-cap tech and media companies.
- Boston: Boston’s 7.3 million sq. ft. of offices under construction is a 20-year high. Nearly half of the space is pre-leased. Several downtown projects have been delayed by the pandemic. Most suburban projects are build-to-suit.
- Chicago: Downtown dominates Chicago office construction, claiming 93 percent of the 7.2 million sq. ft. being built. Forty-six percent of the space is pre-leased. Roughly 60 percent of it is expected to reach completion by year-end. The Fulton Market and West Loop submarkets are the busiest for construction.
- Austin: This metro’s 6.9 million sq. ft. of office construction is its largest total in recent history. Austin also claims the highest figure nationally for construction as a percentage of existing inventory: 12.5 percent. Most construction is in Austin’s central business district and East submarkets.
- Seattle: Offices under construction in Seattle’s Puget Sound region have averaged 7 million sq. ft. for the past five years. Sixty percent of space currently under construction is pre-leased. Seattle’s sustained level of office construction in this cycle has been longer than in previous cycles.
- Dallas/Fort Worth: The 5.9 million sq. ft. under construction in the metroplex is a decline from the market’s peak of 7.5 million in 2014. The metroplex’s construction totals include both build-to-suit projects and multitenant buildings, which can fluctuate in size from year to year with various large headquarters projects.
- San Francisco: Strong demand, mostly from tech companies, often results in nearly all office projects under construction in San Francisco getting leased prior to completion. Of the 4.3 million sq. ft. now under construction in the market, 60 percent will be completed by year-end and all of it has been leased. COVID-19 and shelter-in-place requirements have temporarily slowed the market.