To understand the office space market, it is important to distinguish between vacancy and utilization rates. Sublease activity is a good indicator of supply versus demand for office space. The graph to the right shows office space available for sublease from the Great Recession of 2008-10, through the recent pandemic. This data covers Denver, which Boulder closely parallels.
This graph shows the relatively minor fluctuations until the second quarter 2020 with coming down significantly in the last quarter of 2021, and then shooting up in 2022 to levels even higher than at the peak of the Pandemic. Sublease vacancy rates tell part of the story. To understand the full story we need to look at office utilization rates. Kastle Systems tracks office utilization through collecting data on security entry card activity in ten major US markets. The data suggests office space is being used at 47.5% of its pre-pandemic usage. This can be explained by the wide-scale adoption of work-from-home and hybrid work options. Kastle is calling this less-than-50%-utilization the new normal.
If you are an occupier of office space, you might be thinking, “What does this have to do with me?” While some companies, for example large tech firms, my choose to continue to hold on to office space with low utilization levels. Smaller to medium size companies tend to quicker to react, particularly if the US economy moves further into recession.
What this translates to for the occupiers is more to choose from and more negotiating leverage particularly in the sublease space market. While sublease space generally comes with little or no Tenant Improvement (TI) Allowance, it has the advantage of lower rates and shorter durations. Whether is a sublease, a direct lease or you a purchase you are contemplating, we are there to help you evaluate your options and negotiate the best deal for you.