As we move closer to the end of another year, our thoughts naturally turn to the year to come. Trends in commercial real estate, particularly with regard to office space, point to an active year in 2016.
With rents reaching record high’s and available space reaching record low’s, the upcoming year will be a challenging one for businesses looking for office space in the Big Apple—particularly those startups and SMB’s just starting out.
Here are the trends you should be aware of before starting your search for an office.
In recent years, the demand for office space has been record-setting. According to CBRE, rents in Manhattan reached an all-time high in 2014, and office-availability there dropped to 11%. It’s expected that the 450 million square feet of space now existing will be increased by over 20 million by 2018, and many predict there will still be a shortage. Midtown Manhattan has the lowest vacancy rate in the United States and one of the highest growth rates in rental prices in the country as well.
Also by 2018, all currently existing Class-B and Class-C office space will be occupied, according to a city report. The same report predicts an office space shortage of at least 6.3 million square feet by 2025. That’s about 3% of the city’s total office space. Developers hesitate to build Class B and C space, because the rents, usually below $40 per foot, are too low to cover construction costs. So with few or no new spaces of this type in the works, many small and medium size companies are likely to have trouble finding office space in the city.
It seems likely that this high demand for office space will be reflected in a continued steady rise in rent prices. Reuters reported that overall U.S. office rents jumped by 3.1% in the first quarter of 2015. This was the biggest quarterly increase in more than a decade, indicating that this market has fully recovered from the downturn.
As we mentioned above, the growth in rent rates is highest in Manhattan, but cities all over the country are seeing high demand for office space, particularly in places like Cambridge, MA, Austin, Palo Alto, and the South Lake Union district of Seattle. In general, areas that cater to the technology industry are enjoying very low vacancy rates and higher rent rates.
While we may not see rents increasing as rapidly as at the start of this year, they are likely to continue a steady rise in 2016, in response to strong demand for space.
Depending on the location, it can be difficult to find office space to suit the needs of an organization. Often the problem is in finding spaces that are not too large. Forbes describes the trend toward smaller spaces this way:
“Just as we have gotten used to more fuel-efficient cars, companies now utilize space more efficiently than before, largely through information technology. This is a trend many companies plan to accelerate. In the past, for example, your average mid-level executive had his own secretary; now it’s more common to have perhaps one aide for several managers. Historically office developers assumed that each worker would require 250 square feet of space; by the end of the decade this could drop to 100 to 125 square feet.”
Not surprisingly…technology will continue to be a factor influencing the way we work, and it’s likely continue to drive an interest in smaller and more efficient office spaces in 2016.
Finding the space that suits your organization is essential, but it can take some time, particularly in the tight urban markets. You may feel squeezed between your need to have a place to do your work and taking the necessary time to find one that you can commit to for 3 to 5 years. Our goal is to help you do both.
The modern workplace is changing fast...
Are you keeping up?