The landscape of office leasing has undergone a dramatic shift, with finance and insurance industries surpassing technology in securing top office spaces. According to a recent CBRE report, these industries capitalized on market opportunities in 2022, securing prime real estate as the tech sector recovered from workforce reductions and shifting workplace models.
Strategic Moves in Uncertain Times
Mary Ann Tighe, CEO of CBRE New York Tri-State, noted that businesses confident in their models and adept at balancing in-person and remote work saw 2022 as a prime opportunity for aggressive office space acquisitions.
Finance and insurance companies claimed the largest share of the top 100 office leases in the U.S. last year, with 25 major leases, more than doubling their 2021 total of 12. By contrast, technology companies, which had led U.S. office leasing since 2013, saw a sharp decline, securing only 17 top leases in 2022 compared to 36 in 2021.
Other industries that increased their footprint in office leasing included business and professional services (eight leases), creative industries (five), retail trade (seven), energy (five), and manufacturing and transportation (five).
Tech Companies Retrenching
The decline in tech leasing could pose significant challenges for office markets already facing high vacancy rates. Doug Ressler, Manager of Business Intelligence at CommercialEdge, noted that the contraction of tech office space could also align with the federal government’s intent to shrink its own office footprint. Despite these challenges, landlords remain open to deals with tech firms, though some may be hesitant about startups or companies with weaker credit.
Finance and Insurance Lead the Way
Serge Vishmid, Managing Principal of Atlas Capital Advisors, in an interview with GlobeSt.com, commented,
“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.”
He further emphasized that, unlike tech firms that leaned into remote work, finance and insurance companies retained an in-office workforce even during the height of the pandemic.
“I expect the finance and insurance segment to remain vibrant and to continue leasing office space at pre-pandemic levels,” he added. “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.”
The Future of Office Leasing
Bobby Magnano, President of Financial Services at JLL, noted that financial services companies are still actively securing high-end office space across major U.S. markets. He doesn’t anticipate an immediate change, but with continued pressure on overhead costs, it’s like urban and ancillary locations could be scaled back, continuing a trend that started several years ago.
Meanwhile, tech firms are reassessing their office portfolios in response to cost pressures. The hybrid work model, which many tech companies have embraced, continues to reduce their overall space requirements.
Hybrid Work Reshaping Office Needs
Thomas G. Koelzer, Partner at Tenant Advisors/CORFAC International, told Globe St. that while financial and insurance companies have signed some of the largest leases, this has often involved downsizing and consolidations. Zoelzer believes that technology companies may have over-hired, and with a potential recession on the horizon, excess staff may need to be scaled back, which will facilitate reducing the square footage required for office space.
Petra Durnin, Head of Market Analytics at Raise Commercial Real Estate, emphasized that tech companies are leveraging coworking spaces to support their hybrid workplace strategies.
A New Era for Office Leasing
The shift in office leasing trends underscores the evolving priorities of different industries. Finance and insurance companies continue to bet on traditional office environments, while tech firms, facing workforce reductions and evolving work models, are recalibrating their real estate strategies. As hybrid work becomes more ingrained, office leasing trends will likely continue to evolve, shaping the future of commercial real estate.
Finance, Insurance Industries Top Tech in Office Leasing
by:Paul Bergeron, February 07, 2023