According to global property consultant JLL, as COVID cases subsided in early 2022, corporate occupiers officially set return to office dates and implemented hybrid work policies in Q1.
Physical office occupancy subsequently rebounded from the dip in January 2022, following the Omicron wave, nearing the pre-Omicron peak of 37% in early December. After leasing velocity gained momentum at year-end 2021, a lull in large occupier activity resulted in lower volumes q-o-q. About 5 million s.f. of leases closed in Q1, falling 25% below figures recorded in Q4 2021.
Amongst the largest leases signed were consolidations including IBM's leasing of 328,000 s.f. at One Madison Avenue and MJHS's downsizing to 138,374 s.f. at 55 Water Street. Other significant transactions included Mutual of America Financial Group's 252,000-s.f. lease at 320 Park Avenue and AlphaSights' leasing of 236,026 s.f. at 100 Park Avenue.
Asking rents in high quality product with newer building systems continued to increase and in some instances were higher than pre-COVID rates. Shifts in pricing reflect the market's duality of increased investor confidence in the top-end of the office market as spaces like the penthouse floors at One Vanderbilt are being leased at record-high rates, while older product faces mounting vacancies. Net-new supply additions outpaced demand as sublease availability rose 40 bps or 2.1 million s.f. q-o-q, driven by large footprint contractions by companies that underwent restructurings following the impacts of remote work. Over 95 million s.f. of direct and sublease space was marketed for lease in Q1, up from 67.7 million s.f. marketed prior to the pandemic.
Several large pending leases currently in the pipeline are set to close within the next few months which will boost activity in the coming quarters, though a glut of impending leases rolling in 2022 and 2023 will add pressure on existing supply. Corporate real estate strategies are not one-size-fits-all, however amenity offerings that draw employees to the office will continue to be a critical component of decision-making for occupiers across industries as talent attraction and retention remains a priority for employers. The flight to quality product will hence continue to be a key driver of demand, which will pose challenges for older assets that are not well located and have limited capacity for structural improvements.