Some Key Office Markets Hit Hardest by Tech Wreck

As office demand withers throughout many key markets, the high-flying tech sector has been susceptible to rising vacancy rates, according to a new report from Yardi’s CommercialEdge.

Seattle, Denver, and especially, Austin, are metros once driven by a thriving tech industry that are now disproportionately impacted by the pullback of tech firms.

Austin saw its vacancy rates climb 5.86% year-over-year in April, reaching 19.94%.

Meanwhile, tech hubs Seattle (19% vacancy rate) and Denver (19.90%) experienced 3.28% and 2.45% increases over the same period.

Perhaps taking their places are emerging markets Salt Lake City and Oklahoma City, according to Moody’s Analytics Data Scientist, David Caputo.

“This is now the fourth straight quarter that emerging market vacancies performed better than both established markets and the national average,” Caputo said.

New Orleans, Ventura, and Greensboro fell off the list of emerging tech metros, according to Moody’s Analytics.

Shlomo Chopp, managing partner at Terra Strategies, tells GlobeSt.com that the tech company fallout is an indication of larger things to come.

“Tech suffers when companies cut back on spending as well as a reduction in R&D spending including venture capital,” Chopp said.

“If companies are spending and innovating less that does not portend well for the economy in the near term. Together with the general decline of office values and the obsolescence of boring buildings, it crystalizes into the hangover effect of decades of cheap money and metastasized duration issues.”

CommercialEdge measured the rising national U.S. office vacancy rate at 16.7%, up 100 basis points over year-ago figures.

“Tech layoffs and a large share of office tenants trimming their office occupancies continue to put pressure on some of the most established office markets in the country,” the report said.

As tech firms push to “right-size” their businesses, they’re putting further pressure on availabilities by adding sublease space to the market, the report said.

“Big Tech was the leader in committing to office deals during COVID-19, but occupancy still has not materialized for much of that space,” it said. “The societal relationship with office space continues to fundamentally change.”

Manuel Fishman, a Shareholder at Buchalter, who represents real estate developers and owners in the acquisition, sale, and financing of commercial properties, downplayed the data, including a reported recent “fire sale” on some San Francisco office buildings due to deteriorating occupancy and falling valuations.

“I would caution against focusing on the headline, as the underlying leasing market for Class A buildings in San Francisco and the Bay Area remains solid, as supported by the report’s data,” Fishman said.

“Large tech companies that have long-term leases may be shedding employees and vacating space, but that does not translate to shedding real estate and rent obligations, even if it does signal that there is excess supply.

“What I believe the report highlights is that tenants in the market are gravitating to Class A buildings that can invest capital in best-of-class amenities and services and that the pressure and market uncertainty have significantly increased for investors who acquired commodity buildings in the recent run-up. The recent ‘fire sale’ of those office buildings is a reflection of consequences of that strategy.”

Kul Wadhwa, CEO and Founder of BeyondView, tells GlobeSt.com that it is not a shock to see the commercial sector struggles continue as hybrid work seems to outnumber traditional in-office models.

“Add in the technology sector’s woes in this economic climate, and there is a real possibility that the struggling office vacant rates could be amplified,” Wadhwa said.

“However, not all technology companies are scrambling to make ends meet. The companies that are seeing great returns could look to take advantage of high vacant spaces, and more cost-effective leases in tech-oriented cities as their companies continue to grow.”