Office space consultant Cushman & Wakefield has released a report that shows that vacancy rates fell to 13.9 per cent in the second quarter of this year, compared to 14.6 per cent in the first quarter. And at the same time last year, office space vacancy in business districts was at 14.8 per cent.
Approximately 260,000 workers were added by US businesses in the second quarter of this year, the US Labor Department noted.
“It’s a reflection of the pent-up demand in the market,” Maria Sicola, Head of Americas Research at Cushman, told Bloomberg.
“Economic growth has been slow, but we are growing.”
Figures from the beginning of this year have born out this assessment with leases for 41.8 million square feet of office space being signed in the first two quarters.
The second quarter saw 23.6 million square feet leased according to the Cushman & Wakefield report. This represents the highest three-month total since late 2006.
San Francisco, Chicago and Manhattan all saw occupancy grow in the second quarter of this year.
In San Francisco technology companies have been behind much of the drop in vacancy rates. The city saw its vacancy rate drop to 11 per cent from 11.9 per cent in the first quarter of 2011. And the average rent went to USD 38.95 per square foot, up from USD 36.24.
The South of Market area of San Francisco has increased in popularity with tech firms Cushman & Wakefield stated.
Sicola stated: “There hasn’t been a lot of development – more retrofitting – but the demand continues to grow,” she said.
“You have an interesting area, which is not your traditional core but that has a lot of amenities.”
Editor’s notes: In Q1 of 2023, the national US office vacancy rate in the US stood at 20.2 per cent.
San Francisco’s vacancy rate was 26.8 per cent which was the highest rate in the country.
Chicago’s vacancy rate was 23.5 per cent and Manhattan’s office space vacancy rate stood at 16.1 per cent.
*Vacancy rate refers to the proportion of available office space that is not leased. For example, if 90,000 square feet of a 100,000-square-foot building is leased then the vacancy rate of that building is said to be 10 per cent.
The vacancy rate is not the same as the occupancy level. Using the above example, whilst 90,000 square feet of the building is leased, it doesn’t refer to how intensely space is used.
If the 90,000 square feet was leased to a company that had switched completely to remote working, or the company had to make layoffs, the result would be a low occupancy level.
The occupancy level is important to many landlords because if there is a low occupancy level within a tenant’s space then it would be an indication that the tenant will exercise a break as soon as they are able to and will not wish to renew its lease.
Reduced footfall could also be detrimental if, for instance, there are retail tenants on the ground floor. A decrease in the number of office workers will hurt those businesses and could lead to more voids within the property.