New Sublease Offerings Signal Uncertainty in Office Space
The U.S. economy is showing some signs of slowing down amidst red-hot inflation, which reached a 41-year high of 9.1% in June. Against this backdrop, the Fed raised the federal funds rate by 75 bps for a third-consecutive month in September, leading to an effective rate of 3.08%. Despite these efforts and six consecutive months of slowing, annual inflation stands at 8.2% as of the end of 22Q3. Leading economic indices signal the economy falling into a recession, even amidst a strong job market. The Indianapolis-area unemployment rate is near a historic low and traditional office-using sectors continue to add jobs, but the popularity of remote and hybrid work is increasingly impacting the office market and leading more companies to attempt to sublet portions of their space.
- Full-building sublease options drove availability to a record high.
- High-quality space in newly constructed or renovated assets continues to outperform the rest of the market.
- New leasing activity is at pre-pandemic levels – up 33.9% YOY.
- Large tenants rightsizing their space needs resulted in more than 300,000 sf of negative absorption in a single quarter.