With working from home becoming more common, data from CoStar Group, a commercial real estate company, shows office rents in New York and San Francisco are set to run out of steam. But not all cities are faced with a glut of empty offices. Some markets, from Miami, Florida to Columbus, Ohio, actually expect office rental prices to rise in the new year.
Which American cities will therefore be in the lead with the strongest office growth in 2021?
According to CoStar’s analysis, Charlotte, North Carolina, known for its entrepreneurial spirit, is expected to lead office rent growth at 2.9% (Charlotte is also home to Bank of America and Lowe’s headquarters). Philadelphia comes in second, where its well-diversified market – with major research universities and fast-growing biotech and healthcare companies – is expected to support a 1.9% rental hike. The limited construction in the area doesn’t hurt either.
Philly is followed by Columbus, Ohio, and Tampa and Miami, Florida. How are these cities asking for more and more office space while others are struggling? As CoStar notes, these three subways have rapidly growing populations and are located in business-friendly states. Earlier this month, for example, Bloomberg reported that Goldman Sachs was considering expanding its Miami office thanks to low Florida taxes.
Meanwhile, the picture is grim in America’s biggest (and most expensive) office real estate hubs. According to CoStar, San Francisco and New York are expected to experience the weakest annual growth in commercial rents in the country, at -7.2% and -2.3%, respectively. Just this week, Business Insider reported that UK advertising agency firm WPP is planning to reduce its real estate footprint in New York by a third.
As a note from a CoStar Group analyst points out, New York and San Francisco are very cyclical and have seen strong rental growth over the last cycle. Having said that, these markets will rebound over time, but are unlikely to happen very quickly. “Long journeys, reliance on public transit and a large chunk of inventory located on high floors will challenge these and other large office markets, even as workers gradually return to the office,” according to the note.