New data reveal how much the nation’s office sector is deflating in the wake of the pandemic.
Total investment sales sank 28 percent in 2022 and the situation isn’t expected to improve in 2023, according to a new report from CommercialEdge. Investors in the U.S. completed $83.6 billion in office sales in 2022 at an average $247 per square foot, significantly lower than the $116 billion that closed at an average $280 per square foot in 2021.
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The future still remains unsettled nearly three years after the pandemic rocked the office sector, and “sales will be muted in 2023,” the report said, with larger gaps between sellers’ asking prices and any bids that come in from a smaller buyer pool. Further, many office developments will be paused or canceled this year due to higher interest rates and weakened demand.
“This will be another year of uncertainty and change in the office sector as it moves toward a post-pandemic status quo,” the report said. “Higher interest rates will hamper the new-supply pipeline and transaction markets in 2023.”
The flight to quality will persist as executives who require in-person work target space with high-end amenities to lure employees back. However, office employment growth will continue to decelerate as tech layoffs bleed into 2023 and a potential recession looms, CommercialEdge said. Additionally, demand for coworking will grow in 2023 thanks to its flexibility and short-term commitments.
The national average asking rent was $38.19 per square foot in December, down almost 1 percent year-over-year, while the vacancy rate rose 90 basis points over the same period to 16.5 percent.
Manhattan’s office market, which cleared $6 billion in investment sales, is the second most-expensive in the nation behind San Francisco at $733 per square foot. Boston was second in terms of sales volume with more than $4.71 billion in office sales.
Washington, D.C., was fifth with more than $4.13 billion at an average sales price of $263 per square foot. Los Angeles completed $3.39 billion in sales, which was the seventh most in 2022, at $428 per square foot. Miami closed $1.39 billion in sales at $396 per square foot.
Manhattan’s average asking rent was still the highest in the nation at $76.09 per square foot, which was 1.8 percent more than it was in December 2021. Miami’s average asking rent was $47 per square foot, 5.6 percent higher than a year ago. Listings in Washington, D.C., averaged $41.46 percent per square foot by the end of the year, while Los Angeles was at $42.60 per square foot.
Gregory Cornfield can be reached at gcornfield@commercialobserver.com.
