The future of the national office market is still murky at best more than two years after the start of the COVID-19 pandemic as many workers and firms have become accustomed to remote and hybrid work setups. a
Kastle Systems has noted that occupancy rates in major office markets have plateaued at 43 percent for nearly two months, suggesting that level may be the new normal. Tech giants such as Google, Amazon and Apple (AAPL) have announced and altered return-to-office policies multiple times. Starbucks CEO Howard Schultz has pleaded with his office workers to return to the office, while Tesla CEO Elon Musk demanded that staff return to the office or leave the company.
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Now add a 40-year-high inflation rate and all-time high gas prices to make it more expensive than ever for employees to get to work, as well as rising interest rates.
The U.S. saw $35.3 billion in office transactions in 2022 by the end of May for an average of about $274 per square foot, according to a new report tracking major office markets by Commercial Edge, citing data on office buildings larger than 25,000 square feet. There were about $8.6 billion in sales for the month. The average national asking rent for office space was $37.56 per square foot in May, down 2.1 percent year over year but up 19 cents from April.
The national vacancy rate was 15.4 percent, unchanged from May last year, and there is currently 151.2 million square feet of new office supply under construction, according to Commercial Edge’s report. Every market that the report tracks has had rising vacancy rates since the start of the pandemic, and many have seen rates fall during the past year.
The markets with decreasing vacancies over the past year fall into two categories. The first is markets with a high concentration of life sciences jobs, such as Boston, the Bay Area, New Jersey and San Diego. The second is Sun Belt markets experiencing an influx of new people and companies, including Phoenix, Miami and Austin.
At $967 per square foot, Manhattan is the most expensive place to buy office space. The borough has seen $2.15 billion in office sales so far this year, second to Seattle’s $2.17 billion. It also has the highest listing rate at $72.93 per square foot, but that number is down 12.3 percent since last year. The top listing is 550 Madison Avenue at $210 per square foot. Manhattan has 20.6 million square feet of office space under construction.
Los Angeles has completed $1.92 billion in sales so far this year. The listing rate is at $41.66 per square foot with a 13 percent vacancy rate and 3 million square feet under construction. The top listing is 100 Wilshire at $108 per square foot.
Miami has seen $497 million square feet in office sales. But the city’s asking rates are at $47.08 per square foot, which is up 8.8 percent over last year. Miami has a 9.7 percent vacancy rate with 5.6 million feet under construction. The top listing is 830 Brickell at $150 per square foot.
The average asking rent in Washington, D.C., is at $39.94 per square foot, down 5 percent since last May. The city has a 14.8 percent vacancy rate with 4.8 million square feet under construction. The top listing is Liberty Place at $82.51 per square foot.
Gregory Cornfield can be reached at gcornfield@commercialobserver.com.
