Office rent increases despite remote work

The work-from-home trend has pushed up office vacancy rates across the Triangle.

• But overall the region's office market is still strong compared to other parts of the country, Axios' Matt Phillips writes.

Driving the news: Among the 25 largest office markets in the country, Raleigh saw the second highest rent growth between 2019 and 2022, according to data from CBRE.

State of play: Major markets like San Francisco and Manhattan — where long commute times seem to be driving the durability of the WFH lifestyle — are seeing rents decline.

• On the other hand, markets like Raleigh, Boston and Minneapolis — which have a higher concentration of health services, biotech and life science employment — seem to be faring better. (It's hard to do laboratory research from your home office.)

What they're saying: Heath Chapman, an executive vice president at CBRE's Raleigh office, said the Triangle's life sciences sector has driven the most demand in recent years, with several office and warehouse buildings being converted into labs.

• "Lab space typically costs much more to build than traditional offices, so landlords are making significant investments to upfit these spaces and buildings which in turn leads to higher rental rates," he told Axios in an email.
• At the same time, he said, the leases that are getting signed for traditional offices are in newly-constructed buildings that command higher rents.

What's next: Chapman said there should be some leveling off of office rents in the Triangle, as available space to sublease has hit a record high. For example, Citrix placed its entire downtown Raleigh building up for sublease as its workers go permanently remote.

• In response, he said, landlords are giving tenants more concessions, like shorter leases.
• New office construction is also likely to slow to a halt, as "banks have virtually stopped lending for new office development," he added.