Here Are 11 Emerging Tech Markets Where Office Vacancies are Declining

Usually, office expansion and tech sector growth walk a similar line. When these companies are busy, they need employees and space.

Only, in the tech sector right now, things are a little off the beaten binary path, according to a new report from Moody’s Analytics CRE.

“Prior to the pandemic, prominent established tech markets drove national office performance as American tech companies thrived,” Moody’s noted. “However, as layoffs have engulfed America’s tech industry since late last year, the effects of the pandemic took their toll before the AI revolution took off.”

But as coastal tech markets have seen great artificial intelligence-related hiring as everyone apparently wants to create their own chatbot, they also saw a lot of layoffs prior. Instead, “tech firms’ favorability for dynamic return-to-office (RTO) models leaves overall office performance in these markets sluggish at best.”

“Since the start of 2023, the nation’s 15 established tech metros experienced office vacancy rates rise from 18.0% to 18.2% collectively while their average effective rents have fallen from $48.33 to $48.13 per-square-foot,” Moody’s wrote. “Vacancy rates climbed for established tech hubs like San Francisco, Austin, and Raleigh-Durham throughout Q3 2023, but the story of America’s office space is complex and in flux.”

Instead, investors and developers might look at emerging tech markets, where the office space dynamics are different.

“The national vacancy rate is kept in check partially due to 11 emerging tech markets with significant geographical dispersion,” Moody’s wrote. “They’ve outperformed their long-term established tech market peers. While established tech titans have suffered a 20-basis point (bps) increase in vacancy so far this year, emerging tech markets recorded a remarkable 70 bps decline on average.”

The national average for occupancy and rent changes between 2019 Q1 and 2023 Q3 were respectively 1.2% and 5.7%. Here are the stats for the top emerging tech markets: • Nashville: 12.5%, 12.5% • Wichita: 6.1%, 3.7% • Lexington: 5.4%, 2.5% • Miami: 4.9%, 10.0% • Buffalo: 4.1%, 6.1%

In recent quarters, 91% of emerging tech market vacancies, beyond the top five, declined. Knoxville, Norfolk, San Bernardino/Riverside, and Greenville each saw vacancy rates drop by more than 100 basis points since the opening of 2023.

Miami is technically an outlier from that view, the vacancy rate is still only 16.1%, which still makes it a top metro office performer.

“While Nashville’s office vacancy rate rose from 13.6% in Q1 2019 to 17.2% in Q3 2023, that was the result of a booming construction period which added over 5.5 million square feet of new office space, expanding the metros inventory by a substantial 17.4% in less than five years,” Moody’s wrote.

There were some correlated factors for success (so, no roof that they are necessarily causal). Bigger buildings of more than 100,000 square feet saw average vacancy riser by 370 basis points over the last four to five years, while buildings with less than 20,000 square feet saw vacancies drop by 60 basis points. The smaller buildings tend to attract midsize or smaller companies (and often aren’t overdependent on one tenant) and they’re often in suburban locations rather than central business districts.