With working from home becoming more mainstream, data from CoStar Group, a commercial real estate firm, shows that office rents in New York and San Francisco are expected to lose steam. But not every city is facing a glut of empty offices. Some markets, from Miami, Florida to Columbus, Ohio, are actually expecting an increase in office rental prices in the new year.
Which US cities, then, will be leading with the most office growth in 2021?
Charlotte, North Carolina, which is known for its entrepreneurial vibe, is projected to lead in office rent growth at 2.9%, according to CoStar’s analysis (Charlotte is also home to headquarters for Bank of America and Lowe’s). Philadelphia comes in second, where its well-diversified market—with major research universities and fast-growing companies in biotech and health—is expected to support a 1.9% bump in rents. Limited construction in the area doesn’t hurt, either.
Philly is followed by Columbus, Ohio, and Tampa and Miami in Florida. How are these cities growing demand for office space while others struggle? As CoStar notes, these three metros have fast-growing populations and are found in business-friendly states. Earlier this month, for example, Bloomberg reported that Goldman Sachs is considering expanding its office in Miami thanks to Florida’s low taxes.
Meanwhile, the situation is grim in America’s biggest (and most expensive) hubs for office real estate. According to CoStar, San Francisco and New York are expected to experience the country’s weakest annual commercial rent growth, at -7.2% and -2.3%, respectively. Just this week, Business Insider reported that UK ad agency firm WPP is planning to slash a third of its real estate footprint in New York.
As a CoStar Group analyst note points out, both New York and San Francisco are highly cyclical and experience strong rent growth during the past cycle. That said, these markets will bounce back over time but probably won’t happen very quickly. “Long commutes, reliance on transit, and a large share of inventory located on high-rise floors will challenge these and other major office markets even as workers gradually return to the office,” according to the note.