The Delta variant of COVID-19 has continued to delay the return-to-work plans of many companies. Still, rising vaccination rates and declining case numbers have provided hope for many companies. Anyone worried about the future of office work can look at the continual investment of big tech into the industry to feel confident that offices are far from a thing of the past.
Average Asking Rates Are Up More than 1.2% Year Over Year
In September, typical full-service equivalent listing charges ranged from $22.13 to $83.52, according to an individual market study. The highest annual rise in asking rentals, 8.1%, was seen in Los Angeles office space ($41.62 per square foot) from September 2020 to September 2021.
Tampa, Florida, ($29.70) and the Bay Area (East Bay and South Bay) of California ($55.79) tied for second place in rent increase, with average listing rates rising 6.2% year over year in both regions. Finally, the average asking rent for office space in Miami ($43.43) increased at the third-fastest rate, up 5.8% over the previous year.
Office Vacancy Rates Came Close to Hitting a 15 Percent Goal
September office vacancy rates averaged just shy of 15% at 14.9%. This is down 50 basis points (bps) from August. However, the national vacancy rate is still 130 basis points higher than it was in September 2020, with substantial market variation.
Vacancies have grown the greatest year over year in areas that have received a significant quantity of stock in recent years. That said, these sectors do have the potential to come back faster than average due to more robust recoveries in office-based employment. In fact, we have already seen signs of vacancies decreasing in recent months.
Austin, San Francisco and Seattle Stand Out as Cities to Watch
Austin, Texas, (15.7%) stands out among the cities with the highest vacancy rates: with 15 percent of the city’s office supply supplied since 2017, vacancies have risen by 510 basis points in the last year. Similarly, vacancy rate growth in San Francisco and Seattle office space averaged 510 and 590 basis points, respectively, the most significant year-over-year increases among the major U.S. office markets.
Total National Office Transactions Are Likely to Reach or Exceed $62 Billion in 2021
Through the end of September, the total volume of national office transactions was $53.3 billion. Office transactions finalized in 2021 are expected to surpass the $61.8 billion recorded in 2020, according to sales reported in the first three quarters of the year.
Three Cities Make Up Much of the Total National Office Transactions.
In the first nine months of the year, California Bay Area office sales topped $7 billion, accounting for a considerable portion of the national transaction volume. During the same time period, Boston sales totaled $4.6 billion, while Seattle’s activity is approaching $4 billion, with $3.8 billion in office purchases completed by Oct. 1. These three cities make up around $15 billion of the entire $53.3 billion volume so far.
Unsurprisingly, San Francisco and the Bay Area Have Some of the Highest Office Selling Prices in the U.S.
In terms of office costs, in September, the national average sales price for office space was $295 per square foot. San Francisco and the Bay Area, which are both significant tech clusters, nonetheless have among the highest office selling prices in the country, averaging $593 and $641 per square foot, respectively. Meanwhile, in September, the average sales price for office space in Austin, Texas, increased to $496.
New Office Space is Being Developed – But a Close Look at the Data is Essential
As of September, 158 million square feet of new office space was under development in key U.S. markets. While the pipeline remains strong, it primarily includes projects that were initiated prior to the epidemic owing to lengthy construction delays.
As a result, construction that has just begun this year is a better indicator of ongoing trends than what was previously started and finished this year. Just 36.2 million square feet of new office space started construction in 2021, compared to 87.2 million square feet in 2019.
Notably, the Denver pipeline has reduced to 0.6% of the entire office stock in the city, with less than 1 million square feet of supply under construction at the end of September, despite considerable growth. Around half a million square feet of office space was under development in Tampa, Florida, at the same time, accounting for 0.8% of the total office stock.
You can download and read the full report on October 2021 office lease rates, sales and construction here to review the data and check your local numbers.
