What can we expect from office in the new year? Hard to say, especially since the sector’s post-pandemic recovery is facing yet another setback—ongoing layoffs and office footprint downsizing in the tech sphere.
Data from CommercialEdge’s latest report found that this has continued to put upward pressure on office vacancy. The U.S. office occupancy rate was 16.2% at the end of November, 110 basis points higher than last year and 10 basis points higher than October, and it could rise further in markets with a heavy tech presence.
In the Midwest, Chicago and the Twin Cities were found to have some of the lowest asking rents among leading markets.
Chicago continued to have one of the top sales markets in the country, closing $3.15 billion in office sales year-to-date and $270 million in sales since last month, based on the report. And it did so with one of the lowest prices per square foot ($186) compared to other markets.
Chicago’s nearly three million square foot pipeline accounted for 1% of its existing stock, with an additional 6.63% in the planning stages. The metro also had one of the highest vacancy rates nationwide at nearly 20%, but that rate has increased little in the last year, rising only 0.33%.
Regarding jobs, CommercialEdge reported that Chicago’s office jobs growth increased 3.8% more than 130,000 tech layoffs have occurred across nearly 1,000 tech firms since Q2 2022. Meta has already begun consolidating offices across its largest markets by subleasing space and backing out of lease commitments, and things look the same for Amazon, Lyft, Uber and Snap.
Bleak news, but there are some silver linings.
Tech might not currently be major driver of office leasing, but Apple and Twitter have been leading the return-to-office this year, based on the report, and tech companies, have given the “no-go” to fully remote work, meaning that tech will still be a significant demand driver, allowing for a more optimistic outlook for the near future.
