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Cities With the Highest Office Space Availability as of Q3 2022

Published: 11-10-22 Category: Insight

Specializes in providing actionable insights into the commercial real estate space for investors, brokers, lessors, and lessees. He covers quarterly market data reports, investment strategies, how-to guides, and top-down perspectives on market movements.

The Coronavirus Pandemic of 2020 ravaged local economies both big and small. Office space vacancy hit a high of nearly 18% in Q3 2021, and that statistic is only starting to moderate as we progress further into 2022.

With employers on the blood trail to bring most employees back into the office for at least a couple of days a week, office space vacancies in some underpopulated primary markets are starting to move. These include the office markets in Wilmington, DE; Savannah, GA; and Olympia, WA.

But the more popular primary markets, such as Houston, San Francisco, and Washington, D.C., are still seeing record-high vacancy rates in Q3 2022.

Let’s take a look at why this is the case.

How Are Employers Leasing Office Space Today?

Cities With the Highest Office Space Availability as of Q3 2022

The nation is in the midst of a work-from-home revolution that’s showing no signs of slowing down. Many employees who haven’t left their jobs already are demanding more flexible schedules that include at least some work-from-home time.

Employers, as a result, are looking to cut back on overhead by investing in co-working spaces with more flexible leasing agreements that don’t lock the tenant into a three-to-five-year contract.

As of Q2 2022, there seems to be a shift toward subletting office space and investing in these shared spaces rather than leasing out entire units. Employers are taking advantage of these flexible, month-to-month leases to still provide a coworking space for their employees without throwing unused money out the window.

The national average asking rent per square foot of office space slightly decreased year-over-year to about $38 as the sector tries to adapt to these adjustments to coworking culture.

What’s Happening to Older, Largely Vacant Office Buildings?

A common theme seen around the nation’s primary markets, most especially in New York City, is the conversion of older, largely vacant office buildings into apartments and other residential buildings. But zoning regulations for these conversions are complicating the transformations.

These older office buildings cannot compete with the influx of new and modern Class A and B office space we’re seeing delivered to and leased in primary markets like Manhattan, Boston, Austin, Dallas, and more.

This move by developers and employers is an attempt to entice workers to want to return to the office by presenting them with an updated and contemporary alternative to what they were used to. Time will tell if their strategy pays off.

Cities With the Lowest Office Space Vacancies

Primary and secondary markets with lower costs of living and smaller populations are showing the most positive signs of recovery from pandemic-induced damage.

The cities with the lowest office space vacancies as of Q3 2022 include:

Savannah, GA, with a vacancy rate of about 2.50%. Since H2 2021, there’s been a large migration of businesses and people to hotspots in the South, with areas like Nashville, Atlanta, and Savannah seeing a significant share of market activity.
Wilmington, DE, with a vacancy rate of about 2.00%. Known as the Corporate Capital of America, Wilmington is a satisfying home for many businesses in the legal and financial sectors. Its very favorable tax laws also attract businesses of many shapes and sizes.
Olympia, WA, with a vacancy rate of about 2.8%. Washington is also known as a very business-friendly state offering tax incentives and other programs for businesses that set up shop in their office space markets. Olympia is no exception to this.

Pre-pandemic, in Q4 2019, Savannah’s office space vacancy was nearly 10%, but the mass exodus of individuals and employers from expensive yet more popular primary markets down to the South has driven its vacancy down to about 2.5%. This is largely due to underutilized or totally vacant office space in primary markets on behalf of the work-from-home revolution.

Olympia saw a similar situation, with an office space vacancy of about 3.29% at the end of 2020.

Cities With the Highest Office Space Availability

Now let’s take a look at the cities that were hit the hardest by the pandemic and are still working on recovery.

Some of the cities with the highest office space availability include:

Houston, TX, with a vacancy rate of about 24%. Houston was among some of the hardest primary markets hit by the pandemic. Houston’s already slacking energy sector only made office vacancies worse when the pandemic hit as complexes closed and people worked from home.
San Francisco, CA, with a vacancy rate of nearly 25%. Despite major leases from Google and Wells Fargo earlier in 2022, the office space vacancy rate in San Francisco keeps rising as individuals and businesses flee the tax-heavy, inflation-ridden state.
Washington, D.C., with a vacancy rate of nearly 20%. Washington, D.C.’s office market is riddled with older buildings. As a result, the city is facing the same issues that New York City is facing with its plethora of old and now-abandoned office buildings that no one wants to return to.

Signs of a sound office market recovery in these markets, among others, have yet to reveal themselves.

What’s the Common Trend Here?

No matter the pre-pandemic highs that the primary markets listed here experienced, they all pale in comparison to how high they’ve reached in the two years since the pandemic started.

At the onset of the pandemic, many fled densely populated metros to return to safer, less dense suburban and rural areas.

As the pandemic progressed, landlords sold and defaulted on properties, both multifamily and office, that they could no longer afford as tenants left, and landlords did not receive the same financial support from the government that tenants received at the height of this crisis.

A “New Normal” for America’s Corporate Culture

When it came time for individuals to return to the office, many had already grown accustomed to the work-from-home lifestyle and did not want to return. Many Americans left their jobs entirely, leading to staff shortages and supply chain disruptions.

Fast forward to today, and not only do most employees not want to return to the office at all, but many no longer have any real incentive to do so. Most Americans’ perceptions of their working lifestyles have changed forever, and this shift in perception has hurt office sectors in many major markets.

This is largely what has led to more employers leasing more flexible coworking spaces on a month-to-month basis rather than leasing out entire units. It’s very unlikely that hybrid and remote-working schedules will soon disappear completely.

Methodology

All figures presented in this article are based on MyEListing.com’s commercial real estate listing data in corroboration with other freely available data and information covering the commercial real estate industry.

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