Firms that are confident of their business model and understand how to balance in-person and remote work knew that 2022 presented a market opportunity for aggressive transactions in office space, according to Mary Ann Tighe, CEO, CBRE New York Tri-State.
“In the midst of uncertainly, those firms saw an opportunity and seized it,” she said.
And many were in the finance and insurance industries, according to CBRE. Those segments passed technology as having the largest share of the top 100 office leases (based on square footage) in the US – totaling 25.
That’s up from 12 in 2021. For technology, which has seen its share of workforce numbers challenged in the past six months, it accounted for 17 such leases in 2022, down from 36 in 2021. Tech led in overall US office-leasing activity from 2013 until last year.
Other industries that expanded their share of the largest 100 leases last year include business and professional services (eight leases in 2022), creative industries (five), retail trade (seven), energy (five), and manufacturing and transportation (five).
Doug Ressler Manager Business Intelligence, CommercialEdge, tells GlobeSt.com that shrinking tech company space usage could come as a serious blow to already beleaguered office markets, not to mention the federal government’s intentions to shrink office space.
Tere Blanca, founder, chairman, and CEO of Blanca Commercial Real Estate, tells GlobeSt.com that landlords are still willing to do deals with tech tenants, although some may shy away from startups or low-credit tech tenants.
“Tech tenants have been aggressive in leasing space from coast to coast in the last several years, however with recent layoffs the large tech companies have excess space that needs to be disposed of before they start leasing again,” she said.
Finance and Insurance ‘Actually Came to the Office’
Serge Vishmid, managing principal, Atlas Capital Advisors, tells GlobeSt.com, “If you look at what has been taking place within the finance and insurance segment over the past three years, it is no surprise that this segment has remained rock solid and very steady.
“Many, if not most within this segment, have had record profitability and earnings that have consistently exceeded expectations.”
Furthermore, he said that during the depths of the COVID-19 pandemic, many of these organizations retained a workforce that actually came to the office, unlike the tech segment, which by and large has chosen the hybrid and/or remote workforce model.
“I expect the finance and insurance segment to remain vibrant and to continue leasing office space at pre-pandemic levels,” Vishmid said. “You may see a few subleases here and there from within this segment, but it will be a fraction of what the tech segment is dealing with.”
Tech Re-Evaluating Portfolio Needs
Bobby Magnano, president, financial services, JLL, tells GlobeSt.com that financial services companies continue to be active in leasing trophy/class A space in “great markets” across the US.
“We anticipate that won’t change in the near term,” Magnano said. “Continued cost pressures will likely result in shifting out of second- and third-tier locations in large urban markets, which is a trend that started several years ago.
“Return to the office approaches vary widely and will massively impact the long-term portfolio strategies of financial services firms of all sizes. Technology firms grew during the pandemic, and many are now re-evaluating portfolio needs considering cost pressures, which explains the reduction in volume in 2022.”
Hybrid-Working Tech Needs Less Space
Thomas G. Koelzer, partner at Tenant Advisors/CORFAC International, tells GlobeSt.com that the aging population has increased the demand for financial services, wealth advisors, and insurance products and therefore the need for changes in these companies’ office space needs.
“While many of the largest leases were made by financial and insurance companies, in certain cases this has represented downsizing and consolidations by these firms,” Koelzer said.
“Technology companies over the past several years may have over-hired resulting in excess staff levels. With a potential recession looming, these companies are reducing their headcount significantly, which attributes to a reduced office footprint.
“Additionally, technology companies have been leading the hybrid need for office space and or work from home, resulting in technology companies’ need for less office space than other related industries.”
Embracing the Hybrid Model
Petra Durnin, head of market analytics, Raise Commercial Real Estate, tells GlobeSt.com that many tech companies are embracing the hybrid workplace model to cultivate a strong community and create intentional and collaborative environments.
“These companies are hyper-focused on growing and strengthening company culture and fostering radical collaboration, empirical creativity, and ideation,” Durnin said.
“Additionally, activity in the coworking realm has reduced the number of traditional office requirements and leases. Companies are utilizing coworking more to support their hybrid workplace strategy.”