Rising consumer spending, greater mobility and improved vaccination rates are contributing significantly to bringing back commercial activity to markets that have been impacted by challenges associated with social distancing, limited travel and density. While long-term space planning remains somewhat fluid, flexibility on concessions rather than on asking rates has contributed to sustained growth in average office rents nationally. Specifically, average full-service equivalent listing rates were 1.1% higher year-over-year across the top 50 U.S. markets; according to the most recent report published by CommercialEdge.com, rents last month averaged $38.60 per square foot. The office vacancy rate was 15.6%, same as the month before, a 240 basis points increase compared to last year.
Of course, diverse asset quality and location make for distinction in performance among the markets analyzed for the report. For instance, those operating in markets with an abundance of high-quality inventory coming online are mitigating different challenges than those with a more modest pipeline. Moreover, markets that already have property suited for research and development and life science tenants — which are understandably garnering increased attention and investment at this time — are better equipped to capture investor interest, while other markets adapt their pipelines to meet a subsequent expansion phase.
Boston, a well-established life-sciences hub, saw the largest rent grown last month — average office lease rates there were 7.6% higher year-over-year, resting at $35.46 per square foot. Boston is one of five markets currently concentrating nearly three-quarters of all North American investment in life science firms — along with New York City, New Jersey, San Diego and the San Francisco Bay Area. Office transactions closed since the start of the year totaled nearly $2.2 billion, with office space in Boston commanding a sale price of $533 per square foot, on average, according to a recent Cushman & Wakefield report. Additionally, the Boston pipeline currently includes roughly 13.5 million square feet of new office space under construction, which represents 5.5% of stock. When factoring in the projects that are in the planning stages, the Boston pipeline expands to just below 11% of stock.
The second-highest year-over-year rent growth was recorded on the opposite coast — lease rates for Los Angeles office space grew 7.2% year-over-year, averaging $41.29 per square foot in June. Year to date, office assets that changed hands in Los Angeles amounted to $1 billion in sales, with prices per square foot of $388, on average. Vacancy on the market last month was 13.1%, 60 basis points higher year-over-year. Meanwhile, 9.2 million square feet of new office space was under construction at the close of June, representing roughly just more than 3% of stock. Including projects still in the planning phase, the Los Angeles market has 6.3% of stock in the pipeline.
Nationally, 161 million square feet of office space is currently under construction across the top 50 markets. Of that, 85 million is the total scheduled to be brought to market by the end of this year. According to current office construction forecasts, an additional 200 million square feet of new office space is estimated for delivery through 2026.
Download and read the full July 2021 report on U.S. office lease rates, sales and development here.
