In this article, you’ll discover:

• Growth trends and rising sales in Tampa, Oakland, Los Angeles, and Atlanta.
• Challenges such as high vacancy rates and market instability.
• Adaptations by cities like Tampa and Los Angeles to post-pandemic conditions.

It’s easy to look at the country’s office market under a lens of total doom and gloom, but that would be doing a disservice to the cities actually experiencing growth. Certain office markets have stood out for their impressive growth rates and climbing sales.

However, even within these promising statistics, there is more lurking under the surface. Year-over-year growth is a positive indicator, but not always enough to negate the challenges inundating the post-pandemic office sector. As we venture deeper into the dynamics of these flourishing markets, it becomes apparent that their growth is accompanied by the complexities of a still-adapting industry.

By understanding these dynamics, tenants can navigate the ever-evolving commercial real estate landscape and chart a path toward long-term success. So let’s explore the good and the bad behind the highest-growth office markets.

Tampa, Florida

Tampa-St. Petersburg’s office market is proving to be a city of remarkable growth, posting an impressive 138.3 percent increase over the figures from the previous year.

One of the key indicators of this flourishing market is the positive absorption of over 55,000 square feet of office space. This is primarily attributed to an influx of companies choosing to establish themselves in the region rather than vacate it, reflecting a flight to quality within the Westshore submarket and the Central Business Districts (CBD) of Tampa Bay and St. Petersburg.

Moreover, the Tampa-St. Petersburg office market has witnessed an uptick in rental rates and a decline in direct vacancy rates, further underlining the market’s robust momentum. The volume of leases signed in the first quarter of the year saw an impressive 30 percent increase compared to the fourth quarter of 2022. This surge in interest is driven by an array of factors, including an inflow of companies and corporate investments.

Tampa, in particular, is standing out as a prime location for business growth. Class AA office rents are currently averaging around $36 per square foot, making it an attractive and cost-effective choice for companies looking to expand or relocate.

Major corporations like Citi have recognized the potential of Tampa, selecting it as a strategic center for their operations. Citi’s recent decision to invest in an extensive and modern campus redesign, spanning =137,000 square feet, illustrates the city’s appeal as a competitive business destination.

Notably, the technology sector has emerged as a leading industry, constituting 30 percent of prospective tenants, followed by life sciences at 19 percent, and professional/business services at 18 percent. These trends highlight the dynamic nature of Oakland-East Bay’s office market and its potential for continued expansion and diversification.

Oakland’s office market is intricately connected to its neighboring city, San Francisco. It’s proximity plays a pivotal role in shaping both Oakland’s gains and losses in the office real estate sector.

Data from VTS indicates that, despite facing challenges, San Francisco experienced a notable 69 percent increase in office demand during March. Interestingly, Oakland appears to be benefiting from this positive uptick in San Francisco’s office market. As tech and AI start ups start to slowly return to San Francisco, many are looking to the nearby and more affordable Oakland for opportunities.

Los Angeles, California

Los Angeles, despite grappling with a series of challenges, has emerged as one of the highest-growth cities in the office market, with a substantial 21.0 percent increase since the first half of 2022. This growth is substantiated by impressive figures, as the city secured the top spot in terms of raw numbers, boasting a total investment of $551.3 million across 45 different properties.

The latest VTS Office Demand Index (VODI) underscores the positive trend, indicating that several local markets, including Los Angeles, have experienced notable rebounding in office demand. This growth is particularly noteworthy given the current dynamics of the Los Angeles office market. In 2023, office sale prices in the city saw a significant 43 percent decrease, dropping from $412 per square foot in the previous year to $237 per square foot by the end of May.

Of course, behind this phenomenon is the continued prevalence of hybrid work arrangements, which has pushed vacancy rates in the Los Angeles office market to a new record high of 26.6 percent. Despite this increase in availability, the overall average asking rents in the city have managed to rise by $3.84 per square foot.

The combination of devaluation and low demand has stimulated interest among tenants looking to capitalize on the favorable conditions and the potential for future appreciation. These factors have given rise to a tenant-favorable environment, prompting landlords to prioritize occupancy amidst the ongoing trend of businesses seeking higher-quality spaces and capital investment.

Atlanta, Georgia

Atlanta’s office market has demonstrated notable growth, securing the fourth largest increase with an impressive 12.2 percent rise. This growth is substantiated by significant investments totaling $131.7 million across 11 different properties in the metro area. A key driver behind this growth is the robust construction pipeline the city maintains.

By the end of April, nearly 3.4 million square feet of office space was under development, constituting 1.7 percent of Atlanta’s total office stock. However, commitment to growth has proven to be a double-edged sword for the city.

Atlanta’s enthusiastic approach to construction may have contributed to the slowdown in leasing activity. Despite facing a market with historically high vacancy rates, developers in the city are actively constructing over 2.5 million square feet of prime office space. Notably, only 11 percent of this newly constructed space is pre-leased, a stark contrast to the pre-leased average of 48 percent observed in the largest U.S. office markets.

The metro area currently grapples with a vacancy rate of 28.2 percent, marking the highest vacancy level it has ever experienced. This increase in vacant office space can be attributed to several factors, including downsizing by existing tenants and a surge in subleasing. Many tenants are unwilling to make binding decisions in the flux of Atlanta’s market and this is underscored by the concurrent rise in corporate interest in co-working spaces in the city.

Opportunities for Tenants 

In an ever-evolving commercial real estate landscape, opportunities abound for tenants willing to seize them. These cities experiencing remarkable office market growth—Tampa, Oakland, Los Angeles, and Atlanta—underscore that despite the prevailing challenges, there are avenues for optimizing portfolios. Tenants have the advantage of securing favorable lease terms, cost-effective locations, and tailored spaces. However, they must tread carefully, understanding that each market has its nuances and complexities. As businesses look to navigate the shifting tides of the post-pandemic world, these cities offer the promise of growth, but success demands a strategic approach.

And that’s why you never want to leave your CRE portfolio to chance. Working with an expert True Tenant Rep™ from iOptimize Realty® is the key to leveraging opportunities in the market for success. 

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