Remote work has exploded since the COVID-19 pandemic. Even though the country has resumed normalcy, a perk for many has been to remain working remotely or in a hybrid environment, with 2-3 days in office and the rest of the week in a remote environment. Many cities such as San Francisco and Philadelphia have struggled with office vacancies, leaving the economy to struggle as office workers are not frequenting shops, bars/restaurants, and other amenities as they did before. Good news nationally is that lease signings are beginning to increase, but companies are no longer willing to spend as much as they used to on office space since hybrid strategies are allowing employees to work from home more.

Large firms are now feeling they need less space and are signing deals of up to 15 years for fewer office floors. In the second quarter of 2023, U.S. businesses have signed leases for an estimated 97.5 million square feet which is up 57.5 million square feet from the second quarter of 2020, the low point of the COVID pandemic according to data from CoStar. In the second quarter, the average office lease size was 3,375 square feet, 19% less than the average lease size between 2015 and 2019.

This trend is expected to continue, as more than half the leases signed before 2020 have not yet expired. The U.S. office vacancy rate has increased to 13.2%, from 9.5% prior to the pandemic. CoStar has forecasted that this number will increase to over 17% by the end of 2026. Closer to home, Tampa’s office market has been offering a glimmer of hope for the office market. While leasing volume in Tampa is at its lowest in a decade (only 460,000 square feet was leased in the second quarter of 2023 according to Avison Young reports), CoStar data shows there were 6.3 million square feet in recorded leases between July 2022 and June 2023, up from 5.3 million square feet leased in 2020. While some firms in Tampa may be downsizing office space when renewing leases, they are not vacating and cancelling leases entirely.

Asking rents in Tampa have increased at a consistent rate over the last five years, and rates are up 0.5% from this time last year. Tampa’s sales volume reached a five-year high of $195 million in the second quarter, primarily driven by the sale of Urban Centre, recorded at $123 million. Landlords in cities such as San Francisco have lowered prices to retain tenants and are still struggling to retain and attract new tenants. Tampa has a growing population with a business-friendly environment which gives it an advantage over other markets. Florida remained open during the pandemic, attracting companies such as Pfizer, Rapid7, and DoubleLine which have grown since moving here.

Not all office space in Tampa is seeing a positive trend. Dated suburban office parks are being fled in favor of newer high end office buildings in trendy areas. Water Street, Tampa Heights, Westshore, and Midtown offer class-A offices with amenities such as on-site fitness centers, cafes, restaurants, and lounges. These are all amenities that employers look for as more and more businesses look to lure workers back into the office.

Nationally, shrinking lease sizes are offering another blow to office owners in one of the industry’s worst slumps. Billions of dollars in property values have been wiped and pressure is being applied to a shaky banking system. 61% of U.S. companies are allowing employees to work remotely all of part of the week, up from 51% of companies at the start of the year. Businesses requiring employees in the office full-time have shrunk from 49% at the beginning of the year to 39%. This number is expected to shrink as newer companies tend to embrace flexible work practices compared to older companies. 

Source: Wall Street Journal | Tampa Bay Times