June 24, 2020
Analysis suggests there’s resilience in the Puget Sound region’s office market, despite it being the first region in the U.S. to contend with COVID-19 and is being challenged by the negative economic impacts of the pandemic. The latest research by CBRE shows office employment, which is concentrated in the tech industry, has remained relatively insulated from long-term employment loss. Large-cap tech companies command a large share of office occupancy and are less disrupted by the shelter-in-place mandate.
CBRE’s John R. Miller writes, “Leading indicators suggest that there is still some distress ahead, but carry an optimistic outlook for recovery. Unemployment claims seem to have peaked and are concentrated in temporary layoffs—as the region reopens, these will be the first jobs to return. The office market’s core employers, primarily large-cap tech companies, have provided a foundation for this region’s resilience, as they are able to provide services to those still at home.”
The region’s unemployment rate has reached a historic level, but because job losses are concentrated in retail-focused industries, a forecast from CBRE’s Econometric Advisors indicates office market metrics are unlikely to be as severe. The base case forecast projects a vacancy peak of 11.3% in Q1 2021 (12.6 million square feet), with a quick recovery period.
CBRE points out the composition of office space in the Puget Sound region is concentrated in resilient industries. Tech, life sciences firms and the federal government are office employers better positioned to handle COVID-19’s longer-term affects, according to initial unemployment data. These sectors account for 41.2 million square feet of leased office space in the Puget Sound area, just under 40% of the region’s total office footprint. Mature tech firms have the largest share of occupancy and have significantly outperformed the market, accounting for over one-third of tenant demand—half of lease volume and less than 4% of layoffs since March 12th, notes CBRE.
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