by David Feild, market president, Colliers
This time a year ago, the Upstate office market’s vacancy was approaching single digits, record-setting numbers for a market that has seen vacancy hover in the upper teens most of the past 15 years. COVID-19 shutdowns at the end of 1Q20 changed the commercial real estate landscape overnight as new leasing velocity grinded to a halt.
Outside of a few headlines of notable companies electing to give up their offices permanently, changes in the Upstate office market have been gradual as companies have elected to remain in place and delay any major decisions until they can better predict their future office needs.
Contrary to major markets such as New York City, San Francisco and Portland, the Upstate’s fundamentals built on a great quality of life, lower cost of living and a diverse economy have boosted the region’s popularity and lessened the impact felt through COVID-19. Office vacancy in the Upstate only rose 3.2% in 2020, from 10.1% (1.8 million SF) at the beginning of the year to 13.3% (2.1 million SF) at the end of the year.
Most of this increase came in the form of subleases as sublease availability doubled from 138,811 SF at end of 2019 to 272,048 SF at the end of 2020. Of the 133,237 SF increase in sublease availability, 70% stemmed from suburban locations, following a nationwide trend of companies allowing much of their back-office operations (typically located in the suburbs) to work from home permanently.
Market asking rents stayed flat at $20.79/SF, although, with less demand for new leases and construction costs at all-time highs, landlords are investing more in tenant improvement allowances, free rent, moving costs and other concessions in order to win deals in this environment.
Despite the lack of major changes reflected in the stats above, the initial success of the pandemic-induced work-from-home experience has prompted new perspectives on work, flexibility and the office.
Remote work has shown to be effective in this short time frame; however, at the center of company innovation, productivity, employee attraction/retention, engagement and recruiting is one pivotal function: community. Community of the workplace encompasses a variety of emotions and human needs, including having a place to escape, a space that employees feel energized entering into the building, cutting-edge technology and a place where co-workers can connect. Current conversations among users of office space are centered on a hybrid model incorporating areas of traditional workspace, collaborative workplace and work-from-home.
Forward-thinking companies are already starting to adapt to this model, through occupying less square footage knowing flexible work is part of daily life, but willing to upgrade to Class A space and pay more for it. The world is changing faster than ever, and while it is impossible to predict the future of office, companies are sending very clear signals that a focus on community in the workplace is here to stay.
