In San Francisco, vacancy rose for the fourth consecutive quarter amid a surge of new supply, according to Cushman & Wakefield. A mixed-use development at 181 Fremont St. hasn’t announced any leases for its 432,000 square feet of office space, even though it is scheduled to open later this year. Asking rents in the Midtown Manhattan neighborhood of New York City, meanwhile, averaged $80.45 a square foot annually in the first quarter, compared with $81.16 at the end of the first quarter in 2016, according to CBRE Group Inc. The vacancy rate crept up to 11.9% from 11.6%. Overall, average asking office rents increased 1.8% between the first quarter of 2016 and 2017, the slowest annual rate of growth since 2011, according to Reis Inc.
As tech job growth continues at a rapid pace, it’s beginning to transform smaller cities such as Phoenix and Austin, Texas into top office markets as tenants seek lower rents, less expensive labor, and a lower cost of living for employees than major tech powerhouses like San Francisco and Silicon Valley.
San Francisco saw a 47 percent jump in its high-tech job base from 2013 to 2015, to almost 70,000 workers, according to a recent report by CBRE. In Phoenix, high-tech job growth was 45 percent from 2013 to 2015, to almost 50,000 workers. Both Austin and Charlotte, N.C., had jumps in high-tech jobs of about 33 percent in that timeframe. The tech sector has grown to account for one-fifth of all office leasing today, says Colin Yasukochi, director of research and analysis at CBRE. The 30 top tech markets all saw office job growth of more than 16 percent, outpacing the national average of 13.7 percent.
As several large corporations executed major relocations to upgrade their space and take advantage of state incentives, Northern and Central New Jersey enjoyed one of their best quarters for office leasing in recent history. New Jersey absorbed 1.8 million square feet of office space in Q3 of 2016, the highest amount of square footage absorbed in any one quarter in the state in the past fifteen years, according to Cushman and Wakefield. Nearly all of the occupancy gains were concentrated within the Class A product. The last two quarters combined have produced slightly more than 2.8 million square feet of net occupancy gains, as vacancy has fallen by 140 basis points since the first quarter.
In an effort to get friendlier with multifamily building owners, home-sharing platform Airbnb launched its Friendly Building Program this month, which allows multifamily owners and community associations to share profits from resident hosting. During Bisnow’s recent Silicon Valley State of the Market event, Airbnb head of multifamily housing partnerships Jaja Jackson spoke about the opportunities available to building owners. The program offers incentives for owners including $1M of primary property and liability insurance and profit-sharing.
Kansas City has emerged as one the leading apartment markets in the Midwest as employment gains continue to fuel a healthy rental demand. For the last six years, greater Kansas City has experienced annual average employment gains of 1.5 percent, led by the technology sector. Thanks to the installation of Google Fiber, the Kansas City Startup Village is an appealing location to start a business and currently hosts more than 25 Internet startups. The increase in rental demand is also due to millenials flocking to the downtown area. From 2010 to 2015, residents aged 18 to 35 increased 20.5 percent. Employment opportunities are a big contributing factor, but so is the revival of downtown social life.
As job growth continues to outstrip housing creation causing stratospheric rent increases, six Bay Area cities are adding rent- and eviction-control measures on this November's ballot. Since 2010, the average asking rent for units of all sizes in the nine-county Bay Area has risen by roughly $1,000, or 66 percent, to $2,504, according to Novato research firm Real Answers. Economists are sympathetic of skyrocketing rents, but say rent control is unfair. In California, it helps incumbent tenants in rent-controlled units but does nothing to encourage housing creation. But despite economists' warning, San Mateo, Burlingame, Mountain View, Alameda, Richmond, and Oakland have all placed measures on the upcoming ballot.
After spending years as the nation’s hottest office market thanks to the booming tech industry, San Francisco landlords are bracing for a slowdown as startup valuations weaken and the flood of venture-capital funding slows. The city’s office-vacancy rate jumped in the second quarter by the most since the last recession, while the amount of space available for sublease almost doubled, according to a report to be released this week by brokerage Cushman & Wakefield Inc. New lease deals have tumbled so far this year. Trouble is expected to continue, as investors expect acquisitions of smaller companies whose valuations are falling to potentially lead to job cuts and office consolidation.
As Manhattan enters peak moving season, a surge of new supply has given tenants more choices and bargaining power, causing apartment owners to boost incentives to attract new renters. Deal sweeteners, such as a month of free rent or payment of broker fees, were included in 13 percent of new leases in May, up from 1.6 percent a year earlier, according to a report by appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. The share was the highest for the month since the data began in late 2010. Landlords also whittled an average of 2.1 percent from their asking rents to strike a deal.
ConocoPhillips is the latest energy company to add a huge chunk of office space to Houston’s growing sublease market. The Houston-based company announced June 1 it will put the entire Energy Center 4, a 596,000-square-foot, 22-story tower located in the Energy Corridor, up for sublease. The building was never occupied. "The decision to market the building for sublease aligns with the company’s focus on sustaining structural cost reductions and continued efforts to capture efficiencies," ConocoPhillips said in a statement. "We constantly review our entire portfolio and make adjustments where appropriate; office space being no exception.”
San Francisco’s booming office market is starting to raise some concerns, as tech industry turbulence could reappear and cause companies with banked space to suffer. Thanks to the tech industry, San Francisco has become the hottest office market in the U.S., with diminishing vacancy and rents soaring 137% since 2010. However, much of the office market’s strength is based on growth speculation. Major tech companies and startups have been “space banking” and signing up for large amounts of space for future expansion due to fear of the tightening office market. But these could prove to be risky wagers given the turbulent history of the tech industry.