Honey, We Shrunk The Office Leases

Article Sources: www.bisnow.com/washington-dc/news/office/the-federal-office-footprint-is-on-life-support-threatening-dcs-most-valuable-tenant,www.bisnow.com/national/news/office/office-leases-are-shrinking-in-size-and-in-length

The pandemic's overall effects on the office market are starting to become more apparent, and the conclusion is that there will be an ever-shrinking footprint along with shorter average lease durations than in 2019.

According to CoStar, the amount of new office leases signed in Q3 decreased drastically, reaching its lowest level in the previous six quarters with 18% fewer deals than in Q3 2021 and 15% fewer than in Q3 2019.

Additionally, the average office lease square footage has decreased significantly throughout the course of 2022, falling by 16% from 2019 figures. In the first three quarters of 2019, the average lease size was just over 4,500 SF. According to CoStar, it decreased to slightly over 3,800 SF in 2022.

The average length of an office lease has significantly decreased, according to JLL's Q3 Office Outlook report for 2022, as tenants are increasingly asking for shorter terms. Despite a brief time during which lease periods increased to an average of 9.1 years, the typical lease had decreased to 6.2 years by the third quarter of this year.

Office downsizing is a common cost-saving measure as the economy worsens. The U.S. Patent and Trademark Office dropped 800K SF at its headquarters likely in response to the Office of Personnel Management issuing a directive last year instructing federal agencies to re-examine their office strategy to incorporate teleworking and the pandemic in general. That could lead to more agencies shifting their office strategy to flex spaces, taking a bite out of traditional leased office space.

The federal government has frequently served as a countercyclical driver in times of turbulence for the office market, expanding its footprint to accommodate massive spending packages.

However, despite the passing of three significant spending bills in the past year—the Bipartisan Infrastructure Law, the Inflation Reduction Act, and the CHIPS Act—and the potential political upheaval brought on by midterm elections, analysts do not anticipate the federal government expanding its office space. Although, it is worth mentioning that the Department of Health and Human Services has indicated it may increase its footprint in the near future.