An office is defined as a room, set of rooms, or building used as a place for commercial, professional, or bureaucratic work. The definition of office has not changed since the 1800s, however the location of an office has.
Talkomatic, regarded as the world's first multiuser online chat system, was introduced in 1973 at the University of Illinois. Fast forward 50 years and this idea has evolved into a revolution of digital business methods that society interacts with daily. For many of us what was the physical office has now been integrated with or completely embedded into cyberspace. Cyberspace being a global digital domain powered by the largest network of interdependent infrastructure systems in the world. Consequently, this has led to a decrease in the demand for office spaces and some areas are hit harder than others. Obviously, as the supply outweighs demand prices fall. When the value of the underlying asset falls there tends to be dominoes that fall with it, for right or for wrong.
To start you must analyze the actual market of the office sector. This writing will specifically focus on the markets of San Francisco and Seattle. The current office vacancy rate in San Francisco sits well above 25% as of March of 2023 compared to just above 5% in 2019. Just north of San Francisco in Seattle the office vacancy rate trails close behind above 20%. This is largely due to the hyper intensified work from home trend during COVID-19. Remote job listings have soared from just above 4.8% pre-pandemic to 24.6% by November of 2022 in San Francisco according to a report published by Avison Young from Avant. In this same report it is found that in Seattle office job postings are down -62.1%, number one amongst the top 20 US office markets.
Further evidence of this shift in work trends can be found in traffic congestion data. Urban Seattle traffic congestion in 2022 was down 38% from pre-pandemic 2019 levels according to an article by Gene Balk of the Seattle Times. This was the third highest decline among the 25 most congested U.S. urban areas. Another interesting statistic from the article found that in 2018 Seattle drivers spent 138 hours in traffic each year. In 2022 that number dropped to 48 hours per year. Shifting to the bay area the city and county of San Francisco found that the average morning freeway rush hour auto travel speed rose from 31.5mpg in 2019 to 46mph in 2021. Later in the evening rush hour speeds increased from 23.6mph in 2019 to 33.7mph in 2021. This was at the same time the city had reduced the speed limit by five miles per hour in business activity districts.
Total millions of available square feet is another metric used to analyze the slowdown in the office sector of San Francisco and Seattle. San Francisco boasts the highest sublet space available in the country at 11,883,231 square feet or 6.3% of the total sublet inventory. Seattle sublet space available comes in at 7,277,049 square feet or 3.2% of total sublet inventory. To compare this during the Great Recession of 2008 the sublet square feet available in San Francisco peaked at 4.7 million or 2.9% of the total space. In Seattle, these Great Recession numbers stood at 3 million square feet or 1.6% of total sublet inventory. This information was found in an article published by Margarita Foster of LoopNet on March 28, 2023.
These themes are not just exclusive to San Francisco and Seattle and can be observed across a broad array of tech heavy cities across the USA and the world. One destination oversees where this trend can be found is in Paris, France. In certain submarkets of Paris vacancy rates are as high as 20% in major business districts. In London, UK the vacancy rate tops 8%, the pre-pandemic average was near 5%. These trends are not found in all regions. Tech heavy cities such as Tel Aviv and urban Germany have low vacancy rates that have not changed heavily from pre-pandemic to post. Tel Aviv in specific boasting a 1% vacancy rate.
Another region of interest is China. However, the post-pandemic life for China is just beginning as China finally lifted some covid restrictions in late 2022. Will China follow in the steps of US tech heavy cities, or will they boast low vacancy rates like Tel Aviv?
Sources:
Balk, Gene. “Dramatic Change in How Much Time Seattleites Sit in Traffic.” The Seattle Times, 12 Jan. 2023, www.seattletimes.com/seattle-news/data/seattle-traffic-hasnt-made-a-u-turn-to-pre-pandemic-levels/.
Foster, Margarita Senior. “10 US Markets Lead Historic Office Sublease Availability.” LoopNet, 28 Mar. 2023, www.loopnet.com/learn/10-us-markets-lead-historic-office-sublease-availability/1509687851/.
Sandbach, Julian, et al. “Q4 2022 Central London Office Market Report.” JLL, 19 Jan. 2023, www.jll.co.uk/en/trends-and-insights/research/q4-2022-central-london-office-market-report.
“San Francisco Office Market Report.” Avison Young by Avant.
“City Performance Scorecards.” Congestion | City Performance Scorecards, sfgov.org/scorecards/transportation/congestion.
Marton, Magali. “Office Greater Paris Q4 2022.” Colliers.
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