This is How Bad Tech Office Leasing Has Become

Traditionally, the tech sector was a primary source of growth for the office asset class and as recently as the fourth quarter of 2021, spaces exceeding 20,000 square feet comprised an average of 21.5% of demand. 

But in the first quarter of this year, leasing for the tech category represented only 8.7% of demand, according to a report by Savills, and not surprisingly the drop-off in demand has left a huge hole in the office market.

This is how bad it has gotten: in the first quarter tech there were no leases over 20,000 square feet signed in Atlanta, Denver, Los Angeles and Austin. Meanwhile another key tech hub, Boston, struck only one deal in that size threshold.

Silicon Valley had the greatest share of activity as tech sector market demand hit 65%, up from 33.5% in Q4 2022 with Fujitsu America signing the second largest tech lease via a sale-leaseback. It was their second office sale in Silicon Valley in the past three years as they rethink their space needs.

Landlords are using tried-and-true concessions, such as free rent, office improvement allowances and term flexibility to entice new tenants but over a significant period of time these take their toll and concern other investment participants.

Despite the gloomy picture, Savills offers some hope that tenants who feel good about their future needs may view the time as opportune. First, they can put together deals with favorable terms. Second, some larger tech firms are beginning to opt for a 50%-hybrid model with dedicated and assigned seating versus allowing hoteling or desk sharing. If–and maybe still a big “if” at this time–other companies follow, momentum may build and the tech sector just might show new signs of life.