More than two and a half years into the pandemic, the U.S. office market continues to struggle. Vacancy rates remain high as listing prices drop, causing concern among investors across the country. However, such turmoil has brought about various changes, some of which are quite positive.
To get a better overview of the office space landscape, CommercialEdge crunched the numbers in their latest National Office Report, covering July data. Here are the main findings:
Coworking Becomes an Increasingly Viable Solution
One of the hardest-hit areas of the office market at the beginning of the pandemic was the coworking sector. But, despite the initial slump, coworking spaces seem to be making a strong comeback.
As hybrid work models become increasingly commonplace, employers have had to rethink their approach to office space. Traditional office footprints have stopped being a viable option for many companies, which now see a chunk of their workforce out of the office several days a week. Coworking spaces offer a superb solution in this respect.
WeWork is a great example. Their occupancy rate has returned to pre-pandemic levels, and demand for membership is at a historic high. And they’re not the only ones. Several additional flex and coworking spaces have reported increased demand in recent months.
Crunching the Coworking Numbers
By looking at the figures, CommercialCafe and CoworkingCafe predict coworking spaces to grow considerably as an asset. Currently, there are just 117.5 million square feet of flex and shared spaces across the nation, primarily concentrated in established markets such as Manhattan, Chicago and LA. However, they’re already becoming increasingly common in cities across the country.
Many new companies are eschewing traditional office spaces in favor of the flexibility offered by coworking environments. Then there’s also the financial aspect, as coworking spaces are a far more affordable option for new companies. Plus, as current leases expire, more established mid-size and large companies who have already switched to hybrid work models may be tempted by shared spaces.
Listing Prices Drop as Vacancy Rates Climb
Across the top 50 U.S. office markets, the average full-service equivalent listing rate was $37.75 per square foot in July 2022. While this is a $0.17 month-over-month increase, it’s a 2.3% year-over-year drop. Meanwhile, the national vacancy rate reached 15.1%, a rise of 10 basis points compared to a year ago.
Charlotte, NC, Bucks the Trend
Despite the general slowdown at national level, there are some promising local markets across the country. Most notable is Charlotte, NC, which carries on its five-month trend of boasting the highest price growth in terms of office listings. Its average full-service equivalent listing rate increased 16.8% year-over-year and 17% month-over-month, landing at $33.62 per square foot this July.
Charlotte has also seen vacancy rates drop by 130 basis points to 13.2% over the last year. This is despite seeing around 4.9 million square feet of new office space going live in 2021 and a further 338,000 square feet so far this year. Additionally, the city has 4.3 million square feet of new space under construction, representing 5.6% of the current total stock.
The finance sector largely fuels this construction boom in the city. In an industry where presence within the office is required, demand for traditional office space still runs high. As such, Charlotte finds itself as one of just three cities in which listing rates grew by double figures. The other two were the life science hubs of Boston and San Diego.
Life Science Sector Drives Office Markets Across the U.S.
Similar to finance, life sciences is another sector requiring employees to be present in the office. As a result, life science hubs such as Boston, San Diego and the Bay Area have also resisted the nationwide trend. Vacancy rates tend to be lower, and listing prices are higher than average in these areas. Additionally, local office sales haven’t slowed down to the extent of other markets.
Specifically, in Boston and the Bay Area, year-to-date sales have passed the $3 billion mark. Along with Manhattan, they’re the only markets to breach this figure. Meanwhile, Boston and San Diego have both seen significant year-over-year increases in their listing rates, of 15.2% and 13.9%, respectively.
Regarding office space currently under construction, Boston boasts an impressive 12.3 million square feet in the pipeline, just under 5% of its existing stock. San Diego performs similarly, with 4.8 million square feet on the way, also about 5% of the current inventory.
Interested in the office and shared spaces market in the areas mentioned in this study? Check out the links below: