Vacancy-plagued office landlords are grappling with the perception of vacant buildings and financial losses. However, not all office markets are created equal. For 2023, many markets remain successful, as noted below.
The pandemic has reversed the core regions of the country for business operations as employees transitioned to remote work and businesses relocated to other states. As of mid-November, his weekly average occupancy in 10 metro areas was 50%, according to card swipe access data for his 2,600 buildings in 138 cities by Castle Systems. However, when examining individual markets, the percentages can vary widely.
For example, in the San Francisco area, on average weekdays, 38% of office space is occupied. Average occupancy in Houston is 60%.
As some employers enforce office obligations while others withdraw rental agreements, these occupancy rates will change, impacting the vacancy rates on which landlords rely.
Jacob Rhoden, national office research director at commercial real estate brokerage JLL, said many of the personnel changes that took place in 2023 were the result of corporate decisions made during the pandemic and will continue into next year. .
Real estate decisions are “made over a longer period of time,” Roden said. “There are many large office occupiers in the U.S. who were still holding off on these important decisions in 2020, 2021, and 2022, or who were not yet facing lease expirations.”
Here are the areas that thrived and those that were left behind in office HR in 2023.
winner
sunny florida
In November, Citadel founder Ken Griffin said Miami’s Brickell Bay could become the new Wall Street. Overall, office rents in the city have seen the nation’s biggest jump since the pandemic, rising 40%, according to brokerage Avison Young. According to JLL, the vacancy rate is only 16%, compared to 21% nationwide.
The Magic City isn’t alone in the continued influx of office developers and tenants.
Tampa, too, has an office vacancy rate of just 16% and is in the midst of a development boom, with more than 400,000 square feet of office space currently under construction. JLL predicts office construction in the region will continue. Fort Lauderdale has 350,000 square feet of property under development and a vacancy rate of less than 17%.
It’s not that much of a secondary city.
Small cities are under attack from urban residents who leave metropolitan areas and move into the area.
According to JLL, the office vacancy rate in Raleigh, North Carolina is 16%. In August, communications software company Bandwidth unveiled a $100 million headquarters in the region, pointing to a bright future for the region’s office market. The 40-acre office campus includes soccer and basketball courts, a cafeteria, and a Montessori preschool for employees’ children.
The vacancy rate in Nashville, Tennessee, is a bit high at 21%, but large leases in high-end office buildings suggest interest in the market. In the third quarter, JE Dunn Construction Group acquired 40,000 square feet, coworking company e|spaces signed a lease for 33,000 square feet, and video game developer Iron Galaxy Studios leased 26,000 square feet. .
loser
Disappointing 500 hub
In large cities with established suburbs, many workers expanded their homes and added offices for remote work, and companies downsized their offices.
As of the 2020 Census, Washington, D.C. has a population of 700,000, but Montgomery County, a suburban area where many office workers commute, has more than 1 million residents. The vacancy rate is only 20%, but by the end of 2023, several companies have scaled back operations in the area, and occupancy decreased by 416,000 square feet in the third quarter. JLL said two organizations accounted for more than half of its losses.
The bigger problem for Capitol Hill is the federal employees who have not returned to the Oval Office. The issue has scared property owners, who say it’s a waste of taxpayers’ money to have government employees working remotely.
Atlanta, once an office boom city, is among the cities experiencing the meltdown. Sublease availability is at an all-time high and new construction continues to hit the market. In the third quarter, his 500,000 square feet of new office space across five properties hit the market. JLL last reported a vacancy rate of 23%, and the vacancy rate is likely to rise as new buildings open.
New Jersey has a vacancy rate of more than 26%, and concessions such as free rent are on the rise as landlords scramble to fill office space, JLL said. This is lower than neighboring New York City’s 16.5%.
sad san francisco
San Francisco’s reputation as the epicenter of office doom has deteriorated so much that the city hired a public relations firm to change its narrative. JLL says its vacancy rate is up to 30% and could rise further.
The city faces a dilemma as the value of its most high-profile buildings is declining due to tenant exodus.
In the past, the city received $3.3 billion in property tax revenue, which went primarily to city services and education. Currently, if all office properties were reassessed at the same time, property tax revenue for downtown offices alone would be expected to decline by between $186 million and $297 million annually.