US office market remains flat in Q2 as inflation, broader economy could temper leasing activity

The U.S. office market has remained stagnant during the second quarter of 2022 as inflation and the threat of a recession looms. 

According to Jones Lang Lasalle Inc., leasing activity saw incremental growth of 0.1% from the first quarter. Additionally, office leases came to around 75.5% of pre-pandemic levels, while vacancies reached 18.9%. 

While it is uncertain how tenants may approach their office take up in the face of an economic downturn, there are a few factors landlords can look at to prepare for various outcomes.  

“Maybe it impacts the terms of their leases and expansion plans; maybe they don’t anticipate hiring as many people,” said Grant Pruitt, cofounder and president of Whitebox Real Estate.  

“Right now, there’s been such a drought in the labor market. Companies are still trying to fill those vacancies and add as much headcount as they can.” 

While job growth has certainly consistently increased over the last several months, there is also a spike in layoffs that could further impact how businesses evaluate their office footprint. 

Transwestern research manager Corrie Slewett has yet to note a direct connection between high inflation, a decelerating economy, and leasing activity. However, if inflation continues to climb, the cost of rent will likely grow as well and deter tenants from expanding their workspace presence.   

On the other hand, Slewett adds that tenants might want to take up space before prices go up, but the third quarter will be a true determinator of how the broader economy is impacting the office market.