CommercialEdge: Office sales and vacancy rate rise in mid-2022
Published on July 29, 2022 Eliza Theis
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Two and a half years after the start of the pandemic, the short-term future of the office sector remains uncertain, with record vacancies adding to the industry’s woes, according to a recent office report by CommercialEdge. And as hybrid and work-from-home business models continue to gain ground – and rising inflation further discourages workers from returning to traditional office environments – the sector’s long-term outlook is also bleak.
The best markets for the highest growth in listing speed
The average full-service equivalent rate in the top 50 U.S. office markets was $37.58 per square foot in June, up two cents from the previous month but down 2.6% from a year earlier.
With a year-over-year increase of 15.6%, Charlotte, North Carolina, continued to lead the market in price growth, increasing the average full-service equivalent listing fee to $33.45 per square foot. Prices in this market grew at an increasingly rapid pace for the fourth month in a row.
Similarly, office space in Miami ($47.23 per square foot) rose 8.4% year over year and continued to be one of the fastest growing office space markets. But Boston still outperformed with a 12% increase, thanks to the city’s thriving life sciences industry.
Boston’s only market with less than 10% office vacancy
Although the national job vacancy rate fell 20 basis points (bp) from last month, it increased 20 bp. Notably, office space markets with declining vacancy rates in June were mostly found in the Sunbelt, as well as regions with significant life sciences sectors.
In this area, Boston ($39.31/sq.ft.) was the top-performing office market in terms of occupancy, and the only one of the top 50 office markets in the country with a vacancy rate of less than 10%. In particular, the vacancy rate in Boston decreased by 180 baht compared to the previous year and was 9.6% in June. Twin Cities (Minneapolis-St. Paul), down 190 bp. y/y; Miami, down 200 bps y/y; and Phoenix were the only cities where the number of vacancies decreased significantly.
National office sales up to $43.7 billion in first half of 2022
After a strong June, office sales totaled $8.4 billion in June, bringing the country’s total for the year to $43.7 billion. Gateway markets such as New York, Los Angeles ($42.01 per square foot) and Chicago ($27.30 per square foot) account for 32% of the national total. For comparison, just five years ago, gateway markets accounted for 41.5% of total office sales in the country.
Meanwhile, investors are increasingly shifting their focus to tech cities like Seattle ($37.41 per square foot), Denver ($30.14 per square foot) and off-grid life sciences markets like the District the San Francisco Bay Area — all of which have already seen more than $2 billion in office sales in the first half. In fact, seven markets completed office deals totaling more than $2 billion, and another seven markets surpassed the $1 billion mark.
Construction on 26.5 million square feet of office space has begun this year
As of June, 151.7 million square feet of office space had been built nationwide since January, up 500,000 square feet from May. Of that, 26.5 million square feet came from office construction projects starting in 2022, most of which were concentrated in just a few Sunbelt regions and life sciences clusters.
The San Francisco Bay Area ($56/square foot) leads the latter, opening 2.3 million square feet of office space this year. Following Boston with 1.6 million square feet. Since January, San Diego ($41.60 per square foot), San Diego’s life sciences industry has kept pace with new offices opening just under 1 million square feet.
But when it comes to new office construction, Dallas ($29.24/sq.ft.) and Austin, Texas ($42.39/sq.ft.) far outperformed the rest, with 3.8 million square feet of new construction year-to-date offices. built in Dallas and 2.7 million square feet of construction was completed in Austin.
Similarly, with 2 million square feet started this year alone, Charlotte has continued to dramatically increase the size of its office space. In the west, Phoenix ($26.96/sq.ft.) was next with 1.1 million square feet of new office openings this year.
Overall, 2.2% of the country’s office stock was represented by projects that had a shovel as of June, with another 6.2% still in the planning stages. Of course, the amount of expected inventory that will actually be created — given rising mortgage rates, declining vacancies, and the rise of hybrid and work-from-home models — is still up for debate.
Download CommercialEdge’s full July 2022 report on the performance of the US office markets, as well as information on the industry and the fundamentals of the economic recovery.
Eliza Tice is a senior writer covering US real estate trends. Her work has been cited by CBS News, Curbed, The Los Angeles Times and Forbes among others. With an academic background in journalism, Eliza has been covering real estate issues since 2012. She writes for both PropertyShark and CommercialEdge.