Q1 2021 Office Market Update
The office market continues to struggle reflecting the negative impact of the pandemic on overall leasing activity and occupancy levels. Even with loosening restrictions, working from home is expected to continue for many. As leases expire, the market anticipates that businesses will dial down their footprint and flexible office spaces will become the norm.
A major change is happening in the way many corporations are providing space to their employees, a variety of furniture options provide flexibility to work as needed, many not being assigned a specific space to an individual. Rather, depending on the type of work required on any given day, staff can choose from a variety of options that may include:
typical work stations
small “focus” rooms
or many other furniture based solutions. Combined with a continued work from home option, employees will have options. Employers have witnessed good levels of productivity during this work from home experience and that option will likely continue. The question many have, is how do we create and drive a desired corporate culture when much of the staff is not physically present on a daily basis. How to train and develop new hires remains a hot topic.
Unemployment increased slightly in February 2021 from January 2021 by .01% to 4.4%. The Year over Year increase of 1.3% was not surprising taking into account government restrictions on travel/hospitality and entertainment.
The overall office market experienced (963,593) square feet of negative absorption (space given back ending Q1 with a total market vacancy rate of 13.8%. Focusing on multi-tenant properties only, the overall vacancy rate was 18.2%, more than 5 points up from year end 2020. St Paul CBD, Northeast and Southwest submarkets were nearly equal in leasing activity for the quarter at 180,000 SF each. Overall quoted gross rental rates are averaging $25.02/PSF.
Total sales volume for Q1 was nearly 4 million square feet. With investors snapping up property quickly. Low interest rates keep interest levels high but low inventory continues to limit options.
Commute times are increasing as roads start to resemble pre pandemic levels. It is not clear when mass transit usage will return as the risk of exposure continues and mask requirements vary. Many are venturing out and at least for now, it seems that many are ready to put the last year behind them and look for ways to feel some sense of normalcy.
Written by: Nancy Powell, Vice President | Office Sales and Leasing