Leases  ·  Sales

US Office Sales and Prices Keep Falling With Declining Demand and Ongoing Distress

Office space in January traded for 25 percent less than last year


More distressed office moves are on the way.

A new report from CommercialEdge expects a significant uptick in distressed activity for U.S. office real estate in 2023 due to the higher cost of debt, weak demand, falling prices and a potential recession, and predicts overall office transaction volume this year will be at its lowest level since the years following the Global Financial Crisis.

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CommercialEdge recorded just $1.9 billion of U.S. office trades so far this year, with properties trading at $202 per square foot. That’s far less than the $5.9 billion in office deals last January, and, so far, trades this year closed for 25 percent less than they sold for in the first quarter of 2022.

Higher interest rates have already put pressure on owners with floating-rate debt and created a substantial challenge for those who need to refinance this year. Companies that embraced remote and hybrid work mean offices often sit empty  while waiting for leases to inch toward expiration, and the tech industry that drove much of the leasing in recent years is in a contraction. The lack of demand is leading to falling prices, and further distressed activity could trigger a “downward price spiral for offices.”

“Due to the interest rate environment, economic uncertainty and remote work, we anticipate that there will not be much capital for office transactions this year,” the report read. “Investors may still be able to find loans for well-located buildings with strong occupancy and cash flow, but for the most part deals for office buildings will fail to materialize.”

Manhattan and San Diego both recorded no sales of office buildings with at least 25,000 square feet in the first month of the year. Houston recorded the most in January with $324 million worth of trades, followed by Miami with $316 million. New Jersey recorded $96 million in office trades in January; Los Angeles saw $86 million; and Washington, D.C., saw $78 million. Boston recorded $56 million in trades at $1,054 per square foot, by far the highest rate.

The average office asking rent was $38.04 in January, an increase of 1.1 percent over the previous 12 months.  The national vacancy rate was 16.6 percent, up 80 basis points over January 2022.

CommercialEdge expects many of the distressed properties that are sold to be converted into life sciences or multifamily, with some properties razed and entirely redeveloped. Nationally, there are 123.6 million square feet of office space currently under construction, with Boston, Manhattan, Dallas, Austin and San Francisco accounting for more than a quarter of all new supply being built.

Gregory Cornfield can be reached at