Office Prices Fall In CBDs, Rise in Urban Submarkets As Vacancy Rates Level Off
Meanwhile listing rates have increased nationally, reaching $38.62 per square foot in July
While average sale prices of office buildings in central business districts have fallen to historic lows, prices in urban submarkets are pushing upward, in a move some experts say counters the ‘death of the city’ narrative that’s become so prevalent post-COVID.
The average sale price of assets in CBDs peaked at $400 per square foot in 2019 and fell to $379 in 2020 before hitting $284 this year, according to a recent analysis from YardiMatrix. But meanwhile, the price of assets in urban submarkets have grown from $399 to $511 per square foot from 2019 to 2021. Overall, Yardi logged $36.9 billion in office transactions this year through July, putting 2021 on track to surpass 2020 transaction volume.
At the same time, vacancy rates appear to have fallen off.
“The steep increase in vacancy rates seen through much of the pandemic looks to be over,” the report notes. “In July, the national vacancy rate was 15.5%, 190 basis points higher than July 2020 but 10 basis points lower than the previous month. The national rate increased from 12.8% in February 2020 to 15.6% in March, but 2021 has been roughly unchanged over the last four months, with only minor month-to-month fluctuations.”
Most of the markets covered by Yardi Matrix have posted similar trends with only two of the top 25 markets, Seattle (190 basis point increase since March) and San Francisco (170 bps) showing significant increases in vacancies. The majority of markets have moved less than 50 basis points during that period, according to Yardi.
Listing rates have increased nationally, with the average full-service equivalent listing rate hitting $38.62 per foot in July, an increase of 1.2% year-over-year.
“Recent reporting indicates office landlords are resistant to lowering rates to attract tenants, instead offering concessions and amenities to lure companies into signing leases,” the report notes. “The data backs this up, as national average full-service equivalent listing rates have been virtually unchanged since the start of the pandemic, increasing 1.0% between February of 2020 and July of this year. With the delta variant pushing back the beginning of a return to normal, it will be worth seeing whether landlords can stick to their guns on this.”