Office vacancies are dropping across the Northeast’s large metro areas as demand for space outpaces supply.
According to research from real estate firm Reis, office vacancy rates were at 16.8% nationally, and net absorption for the quarter came to 3.2 million square feet, down from 3.9 million square feet a year ago.
To avoid costly ground-up construction projects, developers are finding ways to turn existing assets into mixed-used spaces with offices. Coworking is a prime candidate to fill this demand.
“The supply of coworking and flexible office plans in Philadelphia has increased by 20 percent in the last year, and it’s only going to increase more,” said Les Hagget, first vice president of advisory and transaction services at CBRE’s Philadelphia office.
Meanwhile, around 27 million square feet of office space was under construction in New York City, in which the $26 billion Hudson Yards mixed-use development accounted for half of.
The boom in flexible offices in the city is partly due to the huge growth of tech, as these companies typically favor flexible spaces with amenities that support health and wellness over square footage.
Boston’s growth in the education, technology and medical fields has also caused strong tenant demand for flexible workspaces.
“The Boston office market is on fire,” said Aaron Jodka, managing director of client services at Colliers’ Boston office. “Vacancies haven’t been this low since the fallout of the dot-com bust. Coworking has been a massive disruptor in the Boston area, and mixed-use is primarily driving new construction.”