SYRACUSE — The normalization of hybrid work and a “flight to quality” by commercial-office tenants are two major issues currently affecting the office leasing environment, according to findings presented at CBRE Upstate NY’s Syracuse Market Outlook Midyear Review. The commercial real-estate firm held a review session to go over the findings on June 6 at […]
SYRACUSE — The normalization of hybrid work and a “flight to quality” by commercial-office tenants are two major issues currently affecting the office leasing environment, according to findings presented at CBRE Upstate NY’s Syracuse Market Outlook Midyear Review.
The commercial real-estate firm held a review session to go over the findings on June 6 at SKY Armory in Syracuse.
According to figures highlighted at the event, the vacancy rate for office space in the Syracuse metro market was 12.8 percent in the fourth quarter of 2023, which was lower than the U.S. national average of 18.6 percent. The market’s asking lease rate for that period was $16.51 per square foot.
Presenters at the CBRE Upstate NY event — which featured Spencer Levy, a global client strategist and senior economic advisor with CBRE, as well as local representatives from CBRE Upstate NY’s Syracuse office — identified some trends currently impacting the commercial real-estate market, both nationally and in Central New York. These trends include:
• The normalization of hybrid work arrangements has limited office demand. This post-pandemic work environment has led to “right-sizing” into smaller spaces. According to the firm’s most recent market report, “More than half of the respondents to CBRE’s 2023 U.S. Office Occupier Sentiment Survey said they plan to further reduce their office space in 2024.”
• Office tenants are engaged in a “flight to quality,” which refers to a migration to newer Class A spaces with the best amenities located in desirable “micro-districts” as they downsize to smaller office footprints. Syracuse’s Franklin Square was cited as an example of a city district benefiting from this trend, with the neighborhood’s office vacancy rate remaining at 2-3 percent, even as the rate for the overall metro area stands at 12.8 percent.
• The current office-leasing environment is challenging for both landlords and tenants. While increased vacancy rates have placed downward pressure on lease rates, increased operating costs and construction costs, and pressure on capital reserves has created “a mismatch between expected and actual lease rates.”
• Older office spaces and those lacking in desired amenities are increasingly being converted to other uses such as multifamily residential. Conversion of underperforming units is expected to accelerate if inflation eases and interest rates drop.
• The government, higher education, and health-care sectors will continue to drive demand for space in Central New York, per CBRE. The report cited a lack of available space on the Syracuse University campus at area hospital systems, which has benefitted adjacent properties.
CBRE forecasts that the national office vacancy rate will peak at 19.8 percent by the end of 2024 due to an economic slowdown in the first half of the year combined with the ongoing hybrid-work trend and new construction entering the market.
Vance Marriner
