Vacancy rates are rising in areas that lean toward technology, while Oklahoma City and Salt Lake City look more attractive.
As office demand wanes in many key markets, the high-flying tech sector has been vulnerable to rising vacancy rates, according to a new report from Yardi’s CommercialEdge.
Seattle, Denver, and especially Austin, are metros once driven by a booming technology sector that are now disproportionately affected by the retreat of tech companies.
Austin saw its vacancy rate climb 5.86% year-over-year in April, to 19.94%.
Meanwhile, tech hubs Seattle (19% vacancy rate) and Denver (19.90%) experienced 3.28% and 2.45% increases over the same period.
Perhaps taking their places are emerging markets Salt Lake City and Oklahoma City, according to Moody’s Analytics Data Scientist, David Caputo.
“This is now the fourth consecutive quarter that emerging market vacancies have outperformed both established markets and the national average,” Caputo said.
New Orleans, Ventura and Greensboro dropped from the list of emerging tech metros, according to Moody’s Analytics.
Shlomo Chopp, managing partner at Terra Strategies, tells GlobeSt.com that the tech company’s fallout is an indication of bigger things to come.
“Tech suffers as companies cut back on spending as well as a reduction in R&D spending including venture capital,” Chopp said.
“If companies spend less and innovate, that is not good for the economy in the short term. Together with the general decline of office values and the obsolescence of boring buildings, it crystallizes in the hangover effect of decades of cheap money and problems with metastasized time.
CommercialEdge measured the rising national vacancy rate for offices in the United States at 16.7%, up 100 basis points over year-ago numbers.
“Technical layoffs and a large share of office tenants trimming their office occupancy continue to put pressure on some of the most established office markets in the country,” the report said.
As tech companies push to “right-size” their businesses, they are putting further pressure on availability by adding sublease space to the market, the report said.
“Big Tech was the leader in deploying office space during COVID-19, but occupancy still hasn’t materialized for much of that space,” it said. “The societal relationship with office space continues to fundamentally change.”
Manuel Fishman, a shareholder at Buchalter, which represents developers and owners of real estate in the purchase, sale and financing of commercial properties, downplayed the data, including a reported recent “fire sale” on some office buildings in San Francisco due to lower occupancy and falling valuations.
“I would caution against focusing on the upside because the underlying leasing market for Class A buildings in San Francisco and the Bay Area remains solid, as supported by the report’s data,” Fishman said.
“Big tech companies that have long-term leases may shed employees and free up space, but that doesn’t translate into shedding real estate and lease obligations, even if it signals oversupply.
“What I believe the report highlights is that tenants in the market are gravitating towards Class A buildings which can invest capital in the best facilities and services and that the pressure and market uncertainty has increased significantly for investors who invest in commodity buildings in the recent run-up. The recent ‘fire sale’ of those office buildings is a reflection of the consequences of that strategy.”
Kul Wadhwa, CEO and founder of BeyondView, tells GlobeSt.com that it is not a shock to see that the battle continues in the commercial sector, as hybrid work seems to be more than traditional office models.
“Add in the problems of the technology sector in this economic climate, and there is a real possibility that struggling office vacancy rates could be exacerbated,” Wadhwa said.
“However, not all technology companies are scrambling to make ends meet. The companies that are seeing big returns may be looking to take advantage of high-vacancy spaces, and more cost-effective leases in tech-oriented cities, as their businesses continue to growing up