Business Development Outlook: Office Vacancy Rates Rise As Businesses Downsize | Jax Daily Record | Jacksonville Daily Record
Office spaces continue to adapt to the effects of COVID-19.
As they have been doing since the start of the pandemic in March 2020, major employers are considering how to bring their workforce back to the office.
This could mean that companies are giving up the space they are renting.
“Sublease opportunities will continue to emerge in the market for the remainder of the year, primarily from corporate users looking to reduce their footprint when considering future hybrid workplace strategies,” says Avison Young in his Q3 Jacksonville Office Insight report.
Vacancy rates and rents are generally on the rise.
CBRE reports that the office recovery lags behind other real estate sectors in the third quarter, with companies adjusting the size and terms of leases, often opting for shorter leases.
CBRE reports that CSX has been reduced by 128,000 square feet at 550 Water St. Downtown following Florida Blue’s over 600,000 square foot reduction last year in downtown and Deerwood Park.
Still, some tenants are moving forward with new leases.
“Among active tenants, medical users led the pack,” Colliers says in its 21Q3 Office report.
“We are seeing an interest from tenants of several small and medium-sized medical groups to expand or open new locations in the suburbs,” he reports.
Some medical tenants are moving from office towers to rent space in shopping malls due to easier accessibility, nearby amenities, and there has been a lack of availability in speculative medical construction.
Reports indicate that JEA and Fidelity National Information Services Inc. are the only major tenants willing to move into the downtown office towers built for them.
JLL reported in their Office Insight that these two buildings represent the first new buildings added to the Central Business District since 2008.
JLL said Fort Wade Building III in Ponte Vedra and Park Place in Nocatee were completed this year, adding approximately 187,000 square feet of space to the suburban market.
Don’t look for a lot of speculative Class A office building.
“We estimate that current construction costs for new Class A office space would require rent in the order of $ 40, which is well above the current market,” Colliers wrote.
Colliers reports that the average Class A asking rental rate was $ 22.27 per square foot during the quarter.
While rents have generally increased during the pandemic, “these gains have come at the expense of longer free rent periods and more tenant-friendly improvement packages,” Colliers said.
Cushman & Wakefield reported in its Office Q3 2021 Marketbeat that the pace of office job growth has remained positive and is set to exceed pre-pandemic levels by the end of the year.
He found that half of all leases were signed in the suburban areas of Butler / Baymeadows.
“Deerwood’s submarkets had the greatest amount of Class A rental activity, indicating a flight to quality by some tenants during this time of uncertainty,” said Cushman & Wakefield.
JLL said that “despite a few major moves, rental activity in the third quarter was the highest Jacksonville has seen since the start of the pandemic at over 300,000 square feet.”
He said two seat moves would result from purchases.
Jacksonville-based automotive group owner Jack Hanania bought the former Stein Mart Inc. headquarters in downtown Southbank, while New Jersey-based Dun & Bradstreet bought the Town building. Center Two along Gate Parkway.
“Despite the Delta variant pushing back the return to work in person, the increase in vacancies in this market will likely slow down in the coming quarters,” JLL wrote.
He also said Jacksonville will benefit from its availability of Class A space for rent, “at a relatively more affordable rate than other Florida markets.”
Average demand rates have remained stable, he said.
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