Tech was the “largest single source” of office leasing demand in 2019, according to Andrew Ouvrier of Cox, Castle & Nicholson, and the sector continues to grow. As a result, tech will continue to be a major player in the national office market this year and well into the future. However, these companies are looking for specific office spaces with amenities and open floor plans, and as a result are only impacting a specific segment of the office market.
“Many tech companies are currently growing and expanding into new space. That demand alone can drive rental rates up, but tech companies are looking for more than simply good office space; they’re looking for spaces that have or are near amenities such as food options, entertainment, fitness centers, and private and communal workspaces,” Ouvrier, a partner at Cox, Castle & Nicholson, tells GlobeSt.com. “These companies need these amenities in order to promote a work/life balance for their employees and in order to attract and retain talent.
For the spaces that fit the bill, tech companies are willing to pay substantially higher rents, which has catalyzed higher office rents overall. “Tech companies are willing to pay higher rents in order to obtain these amenities, and their demand for these types of spaces has driven rent increases,” says Ouvrier. “Additionally, it’s not only the tech tenants themselves that are driving rents, but there can be a secondary effect as service companies and other industries that work alongside tech companies seek to locate near tech center hubs, which further increases office demand and rental rates in those areas.”
The impact that tech companies have had will carry through 2020. “The tech sector was the largest single source of demand for office leasing in 2019, and with many tech companies currently growing and expanding into new space, we expect that trend to continue in 2020,” says Ouvrier.
Of course, recent economic struggles could impact corporate growth this year, but Ouvrier doesn’t think that is likely. “Despite the recent tumbles in the stock market, I anticipate that the U.S. will continue its economic growth in 2020,” he says. “When the economy is doing well, people will continue to need office space and so I anticipate that office leasing demand will continue to grow in 2020 led by the tech and co-working sectors.”
In addition, he expects that medical office will also play a significant role in leasing activity this year. “Medical office leasing is not a new industry, but given an aging U.S. population with increased lifespans, insurance companies’ push for outpatient care in an effort to stem rising healthcare costs, and new medical technologies and outpatient procedures, we see a greater demand for medical services to be provided in medical office settings. As such, medical office leasing will continue to grow as medical services shift away from the more traditional hospital and surgical center settings.”