Post-pandemic office recovery varies by region and market, with New York City seeing the most leasing activity and the highest demand in the past five years. At the same time, vacancy rates remain near record highs in most other large markets. Seattle, Austin and San Francisco are all seeing office vacancy rates above 20%, according to a CommercialCafe office market analysis.
Several transformational shifts have affected the absorption of new stock in recent years beyond hybrid work, including an abrupt shift in tech sector priorities that resulted in mass layoffs in the early 2020s. Investments have become more concentrated in data centers for generative AI development than in hiring workers, said the report.
Nationwide, the vacancy rate dipped by 80 basis points year-over-year in August to stand at 18.7%. The flight to quality in the office sector remains firmly in place, as properties with valued amenities in desirable locations achieve higher occupancy.
Office sales in August reached nearly $33 billion year to date, with trades averaging $190 per square foot. That represents a year-over-year increase but remains well below peaks of nearly $280 in 2019. Prices increased the most in Dallas, from $107 per square foot in 2024 to $240 this year.
About 40 million square feet of office space was under construction, as of August, representing less than 1% of the national stock. Construction starts totaled 10.7 million square feet, and deliveries were 17.3 million square feet. New York, West Palm Beach, Florida and Dallas had the most starts this year. More than two million square feet broke ground in Manhattan,1.4 million in West Palm Beach and one million in Dallas.
Seattle office space saw the highest vacancy rate in the West, with a little more than 27% of space unoccupied. San Francisco had the second-highest vacancy rate in the region, with vacancy reaching nearly 26% in August. Northern California topped the regional list for full-service equivalent rate with office space in San Francisco, with the ask a little more than $64 per square foot in August, nearly double the national average of $32.63. Bay Area office space was the second-priciest in the region, with asking rates averaging nearly $52 per square foot last month — the only other Western U.S. market where rates surpassed the $50 mark. Asking rates were below the national average in Denver, Phoenix and Portland at about $29 per square foot.
Midwestern office properties were among the most affordable in August. Detroit offices, for example, were renting for nearly $22 per square foot, while offices in Minneapolis were renting for $27 per square foot. Chicago was the priciest market in the region with rents averaging $28 per square foot.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.