Report: Sales of U.S. Office Buildings Drop 11% in 2024

As most of the headlines suggested, the  U.S. office market continued its downward slide in 2024, as national vacancies ticked up, discounted office sales effectively doubled, and deliveries declined for the fourth year in a row. 

A new report from Yardi Matrix lays bare the full extent of the dire state of U.S. office, as the report summarizes various metrics of office performance across 2024. The firm analyzed all office buildings exceeding 25,000 square feet.

The report, written by Yardi Matrix senior research analyst Justin Dean, found the average sales price of office buildings declined by 11 percent from 2023 to 2024, and that the sector has experienced “massive value destruction,” with average prices dropping by 37 percent since 2019.  

Doug Ressler, business intelligence manager at Yardi Matrix, cautioned that while “massive value destruction” might sound a bit sensational, there is a sense that office values have at least bottomed out. 

“Highly amenitized buildings in desirable locations have likely seen the floor,” said Ressler. “I think that you’ll continue to see the average price of office buildings fall. You’ll see that people are going to be willing to extend their loans through a variety of means, and at the same time look at putting more equity into a building, selling it, or just stepping away.”

However, not all markets are created equal, and some cities saw strong sales increases in 2024. Manhattan office sales jumped from $1.8 billion in 2023 to $4.9 billion in 2024, the highest amount in any city in the U.S. last year. Washington, D.C., recorded $3.9 billion in office sales – good for second in the nation — while Los Angeles recorded $3.2 billion, and Boston reported $2.4 billion. Overall, all U.S. markets reported $40.9 billion in office sales in 2024. 

To place that figure in perspective, the U.S. office sector recorded nearly $40 billion in sales in the fourth quarter of 2019 alone, according to Yardi Matrix. That year, U.S. sales totaled roughly $121 million. 

Interestingly enough, it was the newer, more highly rated and amenitized trophy offices that saw greater value adjustments in 2024. Yardi Matrix reported that sales prices for Class A office properties declined by 22 percent in 2024, compared to declines of 3 percent for Class B properties. Moreover, office properties in central business districts experienced sales price drops of 28 percent, while suburban office sales prices fell by only 15 percent. 

Resler argued that more often than not, investors are choosing to pour capital into acquiring Class B office buildings that carry more potential to recoup value if bought at a good basis, with an action plan to improve leasing. 

“We see a bifurcated market — the A, A-plus, the trophies don’t seem to have the investment,” he said. “What people are looking for is low risk and potential, and we see that in the B’s. What we really see is the opportunity and investors see the same thing … it’s a low-hanging fruit.” 

Following the iron law of economics, the drop in prices has paved the way for value discovery amid increased office transactions. Last year, the U.S. office market saw almost 600 discounted office sales — in which a building traded at less than its previous transaction value — up nearly 55 percent from 2023 levels. 

“These transactions did not represent minor discounts, either. More than a third in 2024 traded at less than half of their previous sale price, and another third traded at more than a 20 percent discount,” according to the Yardi Matrix report. 

Much of the value decline has stemmed from astonishing vacancy rates. The national vacancy rates for U.S. office ticked up 180 basis points in 2024 and now stands at 19.7 percent. 

While some markets are trending below the national vacancy numbers — notably Orlando, Miami, Charlotte, Chicago, and Boston — others are doing far worse. San Francisco ended 2024 with an office vacancy of 29.3 percent, Austin’s vacancy reached 27.8 percent, Seattle  office vacancy touched 26.4 percent, and Dallas vacancy stood at 24 percent. 

Ressler emphasized that San Francisco and Austin both depend on the overleveraged tech industry to fill office space, while Seattle is beholden to two megafirms, Amazon and Boeing. 

“What we think is happening, especially in the tech industry, is we see that there’s a reduction in force. … They say you’ll either come back to office or you’re no longer here, but it’s a passive reduction of force that’s occurring,” he said. “And there’s almost 30 percent vacancy in Downtown Seattle, so you can’t rely on one firm, Amazon, to bring it back, while Boeing has its own problems.”

As vacancies have increased, the appetite to fund new office construction has plummeted.

Yardi Matrix reported that new construction starts have essentially cratered, as only 44.1 million square feet of new office space were delivered across the U.S. in 2024 — continuing an annual decline that began in 2021 — with barely a fraction of that, 9.1 million square feet, started in 2024. Currently, the U.S. has just 50 million square feet of office space under construction. 

By comparison, the U.S. completed more than 90 million square feet of office in both 2018 and 2019. The forecast of new office spaces is expected to fall below 30 million square feet in 2026 and 2027, according to Yardi Matrix. 

A familiar culprit for the decline in new starts, as usual, is high interest rates, according to Ressler.  

“The cost of money is the first reason,” he said. “Our view is that we’ll be lucky to get one, maybe two, interest rate reductions in 2025, and we certainly won’t see them in the first half of the year.”

Brian Pascus can be reached at bpascus@commercialobserver.com.