Office Investment Activity Continues Its Slow Slog Upward

Deal volume in the office sector creeped higher in the second quarter of the year, but investment activity still remains below pre-pandemic levels, according to a new report from Colliers. 

Q2 sales volume totaled $26 billion, an increase from Q1’s $20.5 billion, with suburban properties accounting for $18.8 billion of that total. By contrast, investors poured just $7.2 billion into assets in CBD locations.

Thanks to its strong life science presence, Boston was the most active office market in the first half of the year and drew $6.1 billion in sales, followed by San Jose at $2.5 billion. Pricing in the Western states is highest, at an average of $408 per square foot, followed by the Northeast at $335 per square foot. The average US price is $287 per square foot, a decrease from Q2 2020’s $291 per square foot.

Vacancy remains high at 14.7%, an increase of 50 basis points in the second quarter and 320 basis points since the onset of the COVID-19 pandemic. This figure is still below Great Financial Crisis peak of 16.3%, but Colliers experts note that “short-term trends may lead to further upward, but declining, pressure on vacancy levels.”

CBD vacancies rose to 14.2% in the quarter, while suburban vacancy ticked up to 14.9%.

Among major metros, Houston has the highest vacancy rate at 22.5%, followed by Austin (20.3%) and Dallas (20.1%). Kansas City has the lowest vacancy rate outside of the tertiary markets at 9.8%, followed by Minneapolis at 10.6% and Jacksonville at 11.3%.

Meanwhile, asking rents are showing little movement with average Class A full-service office asking rents increasing by just 0.3% in the quarter to $40.36 per square foot.

Those rates are $51.41 per square foot in CBD markets and $33.58 per square foot in suburban markets. Seattle, Denver, and Manhattan posted the greatest CBD Class A asking rent declines, while Dayton and Bakersfield led suburban declines.