There remains little good news for investors in the office sector, with prices plummeting 11% year-over-year, low sales volume and limited new building, according to CommercialEdge’s February 2025 office market report.
And it is still uncertain whether the office market has hit bottom, as some hoped. “Highly amenitized buildings in desirable locations have likely seen the floor, however, the volume of distressed assets being sold as more buildings’ fate are determined still pose a threat to regional and national averages that we monitor,” commented CommercialEdge director Peter Kolaczynski.
The number of office buildings sold at a discount compared to their previous sale price rose from 386 in 2023 to 600 in 2024 – over a third of all known office sales. The average price of an office building dove from $196 per square foot in 2023 to $174 per square foot in 2024. The 11% fall, however, was less than the 24% recorded in 2023.
The deepest slumps were for highly-rated properties and those in CBDs, the report found. Class A or A+ property sales decreased by 22% in 2024, while Class B properties slipped just 3% year-over-year. Similarly, the average sale price of CBD buildings fell by 28% -- continuing a trend that has seen a 60% plunge over five years. Suburban properties decreased by 15%. However, prices rose 7% for properties within a city center but outside the CBD.
“Not all properties have seen values plummet, as the most desirable properties continue to demand premium prices,” the report noted. “Office real estate outlooks expect that this gap will continue to grow as the office market evolves and adapts to the new status quo.”
Sales volume rose $3.2 billion year-over-year to $41 billion at an average of $174 per square foot, down $22. Nevertheless, the report said sales volume remained far below the historic norm.
The national average full-service equivalent listing rate was $33.38 per square foot in January, up 27 cents in the month and 5.8% year-over-year.
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The national U.S. office vacancy rate fell 10 basis points 19.7% in January, but up 180 points year-over-year.
Vacancies rose in every market, with the worst affected experiencing over 500 bps spikes. They included Austin, the Bay Area, Portland, San Francisco, Philadelphia and Boston. The nation’s highest vacancy rates were recorded in San Francisco (29.3%), with the Bay Area, Seattle and Denver also leading. Los Angeles had one of the country’s lowest vacancy rates (16.4%).
For the fourth consecutive year, the number of construction starts plunged. While 44.1 million square feet were delivered, only 9.1 million square feet broke ground in 2024. As worries grow about how tariffs could affect inflation, low activity is expected to continue as funding dries up.
By region, most Western markets saw office sale prices above the national average at the end of 2024, led by San Francisco ($345 per square foot), the Bay Area (288 per square foot), and Los Angeles ($272 per square foot). Sales in Los Angeles brought in $3.2 billion, the region’s highest and third nationally. The region also had some of the highest asking rents in the U.S. led by the Bay Area, San Diego, Los Angeles, Seattle and Phoenix.
The Midwest suffered the lowest office sale prices in the nation. No metro saw trades above $100 per square foot in 2024. Chicago achieved $83 per square foot. Still, office sales in Chicago totaled $1.7 billion during the year, the sixth highest level in the U.S. It led the region with 870,000 square feet under construction – less than half what it was in January 2024. Detroit scored sales at $81 per square foot but had the region’s highest vacancy rate. The region’s lowest vacancy rate was in the Twin Cities, Minnesota, with sales of $93 per square foot – representing the region’s highest price.
Some of the nation’s most expensive office markets were in the South. Austin and Miami led with sales of $396 and $365 per square foot, respectively, followed by Orlando and Washington, DC with sale prices above the $174 per square foot national average. DC also achieved $3.9 billion in sales—the second most in the nation. Asking rents in Austin and Miami also surpassed the region, as did square feet under construction. The South’s highest vacancy rates were in Austin, Dallas-Fort Worth and Houston.
In the Northeast, Manhattan was again the most expensive office investment market and the third-highest nationwide. Sales were recorded at $364 per square foot and the metro also scored highest in sales volume of $4.9 billion. Boston also performed well with sales of $2.5 billion at $259 per square foot. The metro’s 7.3 million square feet of ongoing office construction remained the nation’s highest but marked a significant fall from the 14.5 million square feet in 2023. Both Boston and Philadelphia saw vacancy increases during the past year but Northeastern markets as a whole kept vacancy lower than the national average.
It remains to be seen how growing job losses in office-using employment affect the market. “Office employment shrunk 0.1% year-over-year to 34.7 million, a 35,000-job loss. Most of this loss took place in the Professional and Business Services sector, with 69,000 jobs removed. The Information sector lost another 21,000, while the Financial Services sector was the only office sector to grow during the same period, with 55,000 jobs gained,” the report found.
Half the major markets underwent losses in office employment. The Twin Cities were the worst affected, losing 4% -- 19,000 -- of such jobs.
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