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The State of the U.S. Office Market (August 2022)

by Point2 Staff
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6 min. read

As we approach Q4, CommercialEdge has released their latest U.S. office report, covering August data. The findings include a blend of continuing trends, such as the life science sector driving demand for office space, in addition to some changes in direction.

Demand For Life Science Spaces Continues to Rise

In recent years, both private and public funding has been flowing into the life science sector. This has been helped along by the COVID-19 pandemic when breakthroughs in mRNA and CRISPR technologies caught the world’s attention. As a result, demand for ultra-modern lab space has surged, with developers happy to oblige.

Despite the recent weakening of the economy and rising interest rates, sales and supply in the life sciences sector have yet to be affected. Indeed, the average life science facility currently sells for around $645 per square foot. That’s 150% more than typical office space, which trades at $258 per square foot. It’s not only new builds, either. Older spaces that have the potential to be converted into lab space can also command higher prices.

Regarding supply, 21.6 million square feet of lab space are currently under construction across the country. Notably, more than 8.4 million square feet are underway in Boston across 27 projects, making it the largest life science hub in the U.S.

Life Science and STEM Employment Also on the Rise

A recent CommercialCafe analysis of data from the BLS (Bureau of Labor Statistics) puts Boston in pole position in terms of life science employment. The city boasts 23,900 jobs in the sector, followed by New York with 18,100.

Regarding STEM jobs, the New York metro takes the top spot, with 515,540, followed by Washington D.C. at 364,140. Meanwhile, the California-Lexicon Park metro boasts the highest STEM jobs as a percentage of all employment, at just under 25%.

National Listing and Vacancy Rates Both on a Downward Trend

In August, the average listing rate across the top 50 office markets stood at $38.70 per square foot, a 0.1% year-over-year drop. At the same time, the national vacancy rate stabilized at 14.8%, dropping 10 basis points year-over-year and 30 basis points month-over-month.

Charlotte ended its run as the city with the highest list price growth, despite a 16.2% increase compared to a year ago. And, with a 17.7% year-over-year surge in listing rates, Boston took the number one spot, seeing an average listing rate of $40.58 per square foot.

Southern Markets Showcase Mixed Results

Even though Charlotte no longer took first place regarding listing rate growth, it still led among southern markets. Orlando and Miami also saw list prices grow by 7.2% and 5.6%, respectively, with Miami’s average rise to $45.54 being the highest in the South.

At the other end of the scale, Tampa witnessed listing prices drop by 5.9% year-over-year to $28.34 per square foot, the most significant decrease on the list.

In terms of vacancy rates, Miami boasted one of the lowest in the country, at 8.6% this August. The city also enjoyed the sharpest drop nationally, with a 490 basis point decrease year-over-year.

Northeastern Markets Top the Charts

Boston took pole position in terms of listing rate growth across the top 50 largest markets, with a 17.7% year-over-year increase, bringing the average listing price to $40.58 per square foot in August. New Jersey and Philadelphia also witnessed surges.

Manhattan boasted the highest sales price nationally, trading office space for an average of $901 per square foot. Brooklyn took second place at $533 per square foot. Manhattan and Boston closed more than $3 billion in sales each over the first eight months of the year, while New Jersey closed $2 billion.

In terms of vacancy rates, Boston took the number one spot at 8%, a drop of 380 basis points year-over-year. Philadelphia also recorded one of the lowest figures among Northeastern markets, at 12.9%.

Western Markets Buck the Trend

While listing rates dropped nationally, that wasn’t the case in many of the largest markets in the West, particularly California. San Diego and San Francisco topped the charts regarding listing rate increases this August, closely followed by LA. However, San Francisco also witnessed the highest growth in vacancy rates at 18.1%, up 400 basis points from the previous year.

Midwest Markets Witness a Drop in List Rates

Two of the largest markets in the Midwest, Chicago and the Twin Cities, witnessed a decrease in listing prices over the past 12 months. Chicago’s average dropped by 2.9% year-over-year to $27.33 per square foot. Meanwhile, the Twin Cities has seen a drop of 5.4% since last year, with an average listing rate of $25.43 per square foot.

As for vacancy rates, Chicago’s rate increased by 130 basis points to 18,2%, while the twin Cities dropped 320 basis points to 12.2%.

Supply Races to Meet Demand with Mixed-Use Spaces Increasingly Common

A total of 139.9 million square feet of new office space were in development across the country at the end of August. Manhattan led the way by a fair margin, with 19.54 million square feet under construction. In second place, Boston followed with 12.48 square feet of projects with shovels in the ground.

At the bottom of the list, projects underway in Tampa, Portland and the Twin Cities failed to exceed 1 million square feet each. In terms of projects under construction as a percentage of the total stock, Austin came in first at 10.7%, with a further 24.7% planned.

Mixed-use properties are growing in popularity, with office space often just making a small percentage of the total. As a result, CommercialEdge has changed how it reports new office development going forward and now only accounts for the rentable office space in a property rather than the entire space.

Interested in the office or shared spaces market in the areas mentioned in this study? Visit the links below:

Office space for rent in Philadelphia
Office space for rent in Brooklyn
Office space for rent in Portland
Coworking in Manhattan
Coworking in Chicago
Coworking in Los Angeles
Coworking in Boston
Coworking in Charlotte
Coworking in San Diego
Coworking in D.C.
Coworking in New York City
Coworking in San Francisco
Coworking in New Jersey

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