Despite many industry professionals believing that 2022 would be the year in which the office space sector would level out in a post-pandemic world, the predicted stabilization has yet to occur. Instead, a combination of factors has halted growth in many office markets across the U.S.
From interest rate hikes to working from home becoming the norm and office footprints shrinking, several elements have come together to see vacancy rates continue to rise. In their latest national office report including October data, CommercialEdge analyzed the situation.
Vacancy Rates Increase: In All but 3 of the 25 Major U.S. Markets
The demand for physical office space continues to drop as work-from-home and hybrid schedules become increasingly prevalent. As a result, companies large and small have been downsizing their office spaces across the country. This lack of demand has seen the national office vacancy rate grow by 150 basis points over the past year, reaching 16.3% this October.
In fact, vacancy rates increased in 22 of the 25 most important U.S. markets. Portland and San Francisco witnessed the steepest year-over-year increases, with vacancy rates growing by 400 and 390 basis points, respectively. Bucking the trend, Boston, Charlotte, and Washington D.C. were the only markets in the top 25 to record a decline in vacancy rates in the past 12 months.
Listing Rates Decline: Life Science Hubs & Sunbelt Markets the Exception
As to be expected, increasing vacancy rates inevitably result in a decline in listing rates, although the numbers aren’t as devastating as one might think. Over the 50 top U.S. office markets, the average full-service equivalent listing rate stood at $37.94 last month, down 0.1% compared to a year ago.
The cities with the steepest drops in vacancy rates naturally boasted the highest growth in listing rates. Charlotte and Boston were among the top three, seeing year-over-year increases of 15.9% and 12.2%, respectively. Alongside San Diego and Miami, they were the only four markets to witness listing rates rise by double-digits in the past 12 months.
Growth in these markets could generally be attributed to either offering a robust life science sector or the increased migration of companies and workers to Sunbelt markets.
Office Construction Slowdown: Shift Towards Higher Quality Projects
While office construction has managed to continue over the past 30 months, figures are far from pre-pandemic levels. On a national level, the equivalent of 2.1% of the current office stock was under construction at the end of October, amounting to 135.5 million square feet. While an additional 6.1% are in the planning stages, whether they will break ground remains to be seen. Increased construction and material costs, along with significant interest rate increases and supply chain issues, may well stop them.
And with around 80% of projects in the current pipeline kicking off after April 2020, there has been a shift in the market, with developers aiming for higher quality spaces and increased expansion into Sunbelt markets.
Indeed, 125.7 million square feet of the 135.5 million total are represented by class A and A+ projects. Meanwhile, Sunbelt markets such as Austin, Charlotte and Miami have recorded significant increases in office developments. For example, Charlotte has seen projects breaking ground that equate to 7.4% of its existing stock since the start of this year alone. Meanwhile, projects underway in Austin are set to increase the local stock by 8.1%.
Office Transactions: National Sales Volume Over $76 Billion
Between January and October 2022, office transactions across the country brought in $76.34 billion. Manhattan led with total sales of $5.56 billion, followed by the Bay Area, Boston, New Jersey and Washington D.C., all of which boasted sales of around $4.1 billion. In fact, of the top 25 U.S. markets, only four haven’t managed to breach the $1 billion mark. Overall, the national year-to-date price per square foot stood at $261 this October.
For an overview of the office and shared spaces market in the areas mentioned in this article, visit the links below:
Office space for rent in Portland
Office space for rent in San Francisco
Office space for rent in Boston
Office space for rent in Charlotte
Office space for rent in D.C.
Office space for rent in San Diego
Office space for rent in Miami
Office space for rent in Brooklyn
Office space for rent in Austin
Office space for rent in Manhattan
Office space for rent in New Jersey
Coworking in San Francisco
Coworking in Boston
Coworking in Charlotte
Coworking in D.C.
Coworking in San Diego
Coworking in Miami
Coworking in Brooklyn
Coworking in Austin
Coworking in Manhattan
Coworking in New Jersey