New data from Commerial Edge shows that throughout the first half of 2023, pressure on the U.S. office sector was maintained by broader economic trends brought on by several interest rate rises, the rising popularity of work from home, and rising office footprint reductions by businesses.
The national office vacancy rate in the United States increased by 180 basis points from the prior year to 17.1%. While listing rates are declining even in some of the most expensive cities, like Manhattan (down 2.8% year over year) and the Bay Area (down 5.57%), rent growth has remained inconsistent across the nation.
Office sales at this point in 2023 were $14.8 billion, which is much less than the $43.7 billion realised at this time in 2022. Investors continued to be drawn to markets like Boston and New Jersey that had a greater supply of life science products. According to our office market prediction, medical office buildings will also continue to be a popular property category for investors, along with life sciences.
According to the most recent U.S. office market report, the average full-service comparable listing throughout the country in June cost $37.82, an increase of 0.6% over the previous year.
The average cost for A and A+ office spaces is presently $45.41 per square foot, down 1.4% from last year. Rates for Class B offices have risen by 0.3% to $30.37 per square foot, and rates for Class C buildings have risen by 0.3% to $23.04 year over year in June.
The largest rise in rent was seen in suburban areas, where it rose 3.3% to $30.76 per square foot from the previous year. Urban office spaces, on the other hand, had a 1.4% annual decline to $44.80 per square foot in June, while CBD office spaces saw a 1.7% decline to $49.02 per square foot.
Despite the fact that the national office vacancy rate was 17.1%, more than half of the top 25 areas saw vacancies that were higher than the norm. Denver’s vacancy rate, which is one of the highest among the top 25 cities at 20.1%, has climbed by 310 basis points over the last year. According to information from the American Community Survey conducted by the Census Bureau, Denver also has one of the highest rates of distant employment.
Recently, the municipal administration paid an independent consultancy firm to investigate the viability of turning mainly empty skyscrapers in the CBD into homes, joining other cities in doing so. The metro’s central business district had a vacancy rate of 31.7%, more than twice as high as more popular submarkets like Cherry Hill and Lower Downtown.
At the conclusion of the second quarter of the year, 115.8 million square feet of office space nationwide—or 1.7% of the stock—was under construction. Despite this, the pipeline of projects that are still in the planning stages of completion continues to decrease gradually this year.
Only 15.7 million square feet of office space have begun construction through the first two quarters, according to CommercialEdge, which is half of what had begun construction during the same period previous year. Furthermore, only 10 markets—mostly those in the Sunbelt or in life science hubs—accounted for approximately two-thirds of all starts in 2023.
Austin launched more than 1.5 million square feet of construction this year, more than any other market in the nation. The Republic, a 48-story office building on Fourth Street with more than 800,000 square feet of space, is largely to blame for this. Despite having the greatest office utilisation in Kastle’s database and adding office employment quicker than any other market in the nation.According to the Back to Work Barometer, there is still a chance of an oversupply, particularly while the vacancy rate keeps increasing.
