Tech Hubs Experience Office Leasing Growth
Demand for office space has gone up in cities driven by high tech.
There has been a surge of demand in tech hubs like Seattle, Boston, and San Francisco, according to a report from software and consulting firm VTS.
The company claims to see “99% of all newly created tenant requirements within the markets it serves.” It publishes an index of market actions based on total square footage with 2018 to 2019 as the 100-value baseline. Numbers are smoothed using a three-month trailing average and it suppresses monthly data that is verified by fewer than four customer contacts.
The national index was down by 8.1% from the previous quarter, a change from 62 to 57, a decline that is “in line with normal seasonal trends.” VTS says that because of inherent volatility, any change of less than 10 percentage points to be modest. The quarter was up 11.8% compared to the same period during the previous year.
The company thinks that the year-over-year change is a trend of new demand for office space, which is likely to continue for various reasons. One, a healthy but cooling job market sees negotiation power shifting from employees back to employers, who prefer to have workers in the office. Also, work-from-home rates have been the lowest in recent months since the pandemic. Third, employers increasingly have to make decisions about expiring leases and office use.
According to VTS, the FIRE industrial sector — finance, insurance, and real estate — has continued to be a traditional user of office-based work, and so a continuing baseline. The TAMI segment— technology, advertising, marketing, and information — has had a more favorable relationship to remote work.
However, there is a new trend. TAMI companies have recently begun to gravitate back toward the office. It is circumstantial, VTS emphasizes, based on an increase in office leasing in the likes of Boston; Chicago; Los Angeles; New York City; Washington, D.C.; and San Francisco.
“However, it is suggestive, and it lines up with anecdotal evidence of at least some tech sector firms shifting their stance in ways that fuel demand for office space,” it wrote.