Rise in office space hitting the market this year is a direct result of the Covid-19 pandemic
Because most building expenses are fixed, even a small drop in leasing revenue often leads to a big drop in profits and an even bigger drop in a building’s value.
By Konrad Putzier and Peter Grant
The following appeared in the April 13, 2022, WSJ print edition as ‘Office-Lease Expirations Pose Risk to Landlords.’
A record amount of U.S. office space is hitting the market this year due to a jump in lease expirations, putting property owners in a bind and threatening to leave banks and other lenders stuck with more troubled loans.
Most office building owners have been able to ride out the pandemic because corporate tenants have been locked into long-term leases. They continued paying rent even when their employees stayed home. Now as more leases expire, a growing number of tenants are shrinking their offices because they need less space under hybrid strategies that blend office with remote work, brokers say.
Leases for 243 million square feet of U.S. office space are set to expire in 2022, the most office space to hit the market in a single year since real-estate services firm JLL began tracking this data in 2015. The expiring leases represent about 11% of the nation’s overall leased office space.
The rise in office space hitting the market this year is a direct result of the pandemic. Many office tenants whose leases expired last year or in 2020 negotiated extensions of only a year or two, rather than renewing at the typical length of 10 years or longer, as these firms tried to determine how much less space they might need under a hybrid approach.
“I don’t think the landlords have felt the pain yet,” said Jeffrey Peck, vice chairman at commercial real-estate brokerage Savills. “Now they’re going to start feeling the pain.”