Despite widespread predictions that the COVID-19 pandemic would put an end to office buildings, construction has persisted — albeit at a reduced rate. While ground was broken on 86.4 million square feet of new supply in 2019, the number dipped to 58.4 million in 2020 and crept up to 63.1 million in 2021.
In March, 144.7 million square feet of office space was under development across the country, accounting for 2.2% of total stock. Notably, half of that pipeline will be provided outside of key business areas in urban submarkets. Furthermore, 93% is Class A or A+ space, indicating that businesses continue to prioritize high-quality projects in order to retain their workforce.
Austin, Texas, Tops Major Cities in Planned Office Developments
In March, there were 10 million square feet of office space under construction in Austin, Texas. This accounted for 11.5% of the city’s current stock, whereas planned projects accounted for 25.3% — the highest percentage among major cities. This comes after Austin also outperformed all other markets as far as office-using job growth (14%) and new development (5.3 million square feet) in 2021.
Meanwhile, in Dallas, domestic migration to the Sunbelt generated 107,000 office jobs in 2021, resulting in 4.5 million square feet of new construction. Accordingly, Dallas had 5.47 million square feet of office space under development as of March 2022, with planned projects accounting for 6.8% of existing stock.
In contrast, construction slowed in Denver and Phoenix due to the pandemic and massive pre-pandemic deliveries; between 2015 and 2021, more than 16 million square feet of additional supply came online in each city. By comparison, in March, both cities had slightly more than 1 million square feet of office space under development, accounting for just more than 0.8% of their total stock.
National Average Listing Rate Falls 2.6% Year-Over-Year
In March, the national average full-service equivalent office listing rate was $38.65 per square foot, down 2.6% year-over-year (Y-o-Y), despite being $0.03 higher than February prices.
Zooming in, some markets recorded double-digit price increases, including Miami at 12.2% and Charlotte, North Carolina, at 10.7%. In fact, Charlotte had the largest price increase among the Sunbelt cities, with an average listing rate of $31.99 at the end of March. Conversely, Chicago (0.1%) and Seattle (0.7%) had the weakest growth rates.
Office Vacancies Still in Double Digits Across U.S.
The $63.04 listing rate in San Francisco was the second highest in the country, despite the fact that it was down 9.5% Y-o-Y. Vacancies in this sector also increased from 7.3% pre-pandemic to 17.3% in March. San Francisco’s average vacancy rate also increased by 380 basis points year-over year — the most among the top 50 office markets in the country.
The San Francisco Bay Area performed better with a vacancy rate of 15.1%, down 420 basis points from March 2021, indicating the most substantial narrowing of vacancies among leading office markets. Boston, on the other hand, had the lowest vacancy rate (10.5%), followed by Miami (12%) and Portland, Oregon (12.3%).
Overall, vacancies in the country’s top 50 office markets remained in the double digits, averaging 15.9% nationally and up 30 basis points year-over-year.
Six Major Markets for Q1 Office Sales
In the first quarter of 2022, office sales totaled $18.9 billion across the country, $7.5 billion of which came from six major markets: Seattle; Dallas; New York; Houston, Texas; the Bay Area; and Manhattan, N.Y. Each of these six cities have had more than $1 billion in sales year-to-date.
Although office sales in Los Angeles fell short of $1 billion in Q1 (reaching $998 million), the entertainment sector has continued to drive investments in a city where office-using employment is trailing. To that end, the $93 million sale of the Netflix-occupied 1350 North Western Ave. was the city’s biggest deal of the year thus far.
Download the complete April 2022 report on office market performance in the U.S., as well as industry and economic recovery fundamentals.