Employees continue working from home after the 2020 pandemic, and for that and other reasons, companies do not need more office space.
In many cases, they need less. Or sometimes, none.
“Vacancy today is higher than it has been any time since 2014,” reports Colliers in its fourth-quarter 2023 Jacksonville office market report.
“Market rents are continuing to grow slowly but things like free rent and tenant improvement allowances are more than offsetting the growth rate in face rate,” it said. Face rent is the rate without incentives.
“Until corporate America is willing to take a stand against work from home, the rationalization will continue, and office owners and lenders will bear the brunt of the pain.”
Downtown continues to see the highest vacancy rates with Northbank offices and towers experiencing up to 25.1% and Southbank buildings up to 22.4%.
Suburban rates are lower, with some smaller markets, such as the Beaches and parts of the Southside, in single digits.
CBRE said office space headwinds including inflation, recession fears and hybrid work schedules have slowed office demand in 2023.
“New leases and expansions are down while total vacancy has remained elevated, consistently above 20% over the past year,” CBRE said.
It said space needs by major office users are expected to fluctuate over the next few years “as companies decide how to navigate occupancy challenges.”
CBRE said in the fourth quarter, tenants vacated almost 290,000 square feet as they downsized or vacated space.
It reported that 202 leases totaling almost 1.77 million square feet of space were signed in 2023, with renewals accounting for 37.4% of that.
The average lease size for new leases and expansions was 7,103 square feet, up slightly from 2022.
CBRE said demand should start increasing during 2024 with more than 380,000 square feet of tenants in the market seeking space.
Another note is the addition of sublease space, which are offices being vacated but still leased by the lead tenant. That space has increased by more than 50%.
Currently, about 1 million square feet of sublease space is available, with 617,000 square feet of that vacant.
“Now is the time for small to mid-sized companies to upgrade their office space needs,” CBRE said.
Colliers said office development remains at a standstill except for build-to-suits, corporate owner/occupier situations and medical facilities.
Rental rates do not support construction of new speculative office space.
Colliers said the top four office developments underway are medical and the fifth is in the Beaches submarket.
Cushman & Wakefield reported that leasing has been showing signs of recovery.
It said the annual leasing total for the year was 1.2 million square feet.
The suburban submarkets continued to outperform the Central Business District, accounting for 75.3% of new volume while the CBD recorded a year-end total of 291,300 square feet.
Avison Young reports in its Q4 2023 Office Market Snapshot that “a notable disparity in demand has emerged between urban and suburban markets.”
Urban properties are taking an average of 23.3 months to be leased compared with 15.4 months in the suburban markets, although that urban time has decreased.
“Operating fundamentals in the office market continue to languish,” Colliers says.