Home News My List of 23 Major US Office Markets, by Vacancy Rates Ranging from Abysmal to Just Terrible

My List of 23 Major US Office Markets, by Vacancy Rates Ranging from Abysmal to Just Terrible

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A commercial real estate struck by a construction boom, oil bust and pandemic, they work from home and are now adopting freezes and layoffs. Old office towers cost a lot of money.

To Wolfrichter for Wolf Street..

News in the office sector of commercial real estate is getting worse. Some tech and social media companies, such as Facebook and Twitter, have announced a freeze on hiring. Some companies, like Uber, suddenly prioritize cost savings and promise highly constrained employment. Many startups have fired people, including Carvana, an online used car dealer who fired 2,500 workers last week. Mortgage lenders since Wells Fargo have begun to dismiss a significant portion of their employees as mortgage lending is currently in dumps.

There are also shifts from working from home to office employees, and hybrid models that only occasionally appear in the office.

All this follows years of the office construction boom. The new office tower has been completed and is on the market with the latest and greatest equipment. These trophy towers compete with older office towers for shrinking office needs.

An extensive flight to quality has begun. When the lease of the old tower ends, the tenant will move to the Trophy Tower and leave the old tower empty. And because the landlord can’t accept the mortgage payment, the rent can’t be reduced enough. Therefore, the office sector of commercial real estate faces an ugly reality.

Vacancy rates, which sound no worse than vacancy rates, soared during the pandemic and continued to rise until the first quarter of 2022 in many cities and are now in the astronomical zone.

According to data from, the four worst office markets in terms of availability are the suburbs of Chicago (31.7%), Houston (30.5%), Dallas-Fort Worth (30.9%), and San Francisco (26.8%). Savills..

In San Francisco, for example, 26.8% availability was the worst new record in the data, up from 7.3% availability in the third quarter of 2019. In 2017 and 2018, San Francisco was the hottest office market in the world. America. This is called an “office shortage”, where a company leases or buys unnecessary office space and occupies this space before anyone else gets it, ensuring space for ultimate growth. rice field.

According to Savills, the San Francisco market currently has 23.1 million square feet (msf) of available office space, up from 6.1msf in 2019. And new construction is still on the market.

For example, Meta leased the entire San Francisco office tower in 2018, when it was still Facebook, as well as all other office space already in the city, Silicon Valley, and more. “This new space will support a growing workforce as we continue to attract talent,” Facebook said. Said In the statement. Since then, we have signed more leases in Silicon Valley. After that, a pandemic occurred and I was working from home, but now recruitment is frozen. So who needs all this office space?

This is how the San Francisco market has turned from an endlessly hyped office shortage to an endless office overrun where no one knows what to do.

But San Francisco is not the worst office market. According to Savills, its honor lies in the Chicago Suburban Market, Houston, and Dallas / Fort Worth. All of these have over 30% availability.

Houston has had the worst office market in the United States for years. The office construction boom struck the oil bust in 2015, and a number of Texas-based oil and gas companies filed for bankruptcy, hitting the industry as a whole. Cost savings, layoffs, and footprint savings. Houston availability has skyrocketed. After that, a pandemic and telecommuting occurred, and it got worse.

It’s not the new office tower that’s having problems. They attract tenants by offering the latest and greatest, offering flights to quality sets that leave old office towers open, defaulting, and holders of this debt, usually commercial. Causes huge losses to investors in mortgage-backed securities (CMBS) These mortgages have been rolled in. Or banks, insurance companies, and other investors who have full mortgages.

For example, in Houston, two office towers built on the same campus in the 1980s were recently sold for foreclosure. First Three West Lake Park, then Two West Lake Park. After fees and expenses Investors ate 81.9% and 88.3% mortgage losses, respectivelyBecause the value of these old office towers collapsed due to lack of demand.

And the market is flooded with sublease space, hoping that tenants who don’t need the leased space will find a tenant that will help reduce the cost of transporting the space until the lease expires. I am. Companies that put empty space on the sublease market tend to cut down on landlords because they don’t have to make a profit on that space. They just want to get back some of their costs.

In the second half of last year, it was expected that sublease space would reach its peak as companies searched for tenants in sublease space or withdrew from the market. However, according to CBRE, in the first quarter, sublease space increased 3.6% from the fourth quarter to 159 million square feet. The Wall Street Journal..

Despite astronomical availability, landlords have not significantly reduced their asking rents and are raising them in many markets. There are some exceptions, including San Francisco. In San Francisco, recruitment rents are falling.

But whatever the rent claim, the landlord is negotiating and trading, offering all sorts of incentives to sign tenants in free space, from free rent periods to large extension allowances. increase.

It shows the 23 major US office markets based on Savills data and the availability rates for the first quarter of 2021 (green) and the first quarter of 2022 (purple), from worst to worst. , Boston, has an availability rate of 15.3%.

In six of the 23 markets, availability fell year-over-year, the highest in Boston (2.0 percent points).

In 17 of the 23 markets, availability deteriorated year-over-year, the fastest in San Francisco (3.2 percent points), Charlotte (2.5 percent points), and downtown Chicago (2.4 percent points). Tampa Bay (2.3 percent points):

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