US Office Sales Up, But Won’t Hit Pre-Pandemic Annual Average

National office transaction volume is on pace to eclipse the total from 2020, but fall short of pre-pandemic levels from the latter part of the last decade, according to CommercialEdge.

The San Francisco Bay area, Boston, Seattle, Austin and Atlanta have impacted this year’s numbers, which sit at $53.3 billion through the end of September; $61.8 billion were recorded during 2020.

Notably, Bay Area office sales exceeded $7 billion in the first nine months of the year, carrying significant weight in the national transaction volume. Boston sales amounted to $4.6 billion during the same timeframe, while the Seattle volume is nearing the $4 billion threshold, with $3.8 billion in office transactions closed by October 1. 

In terms of office prices, the national average sales price for office space rested at $295 per square foot in September. Big Tech clusters San Francisco and the Bay Area still boast some of the highest office sale prices in the U.S., averaging $593 and $641 per square foot, respectively. Meanwhile, the average sales price for office space in Austin inched upwards to $496 in September.

Some markets have more than doubled last year’s sales volume, with the fourth quarter— typically the busiest for transactions—still to come. Atlanta sales volume was $928.3 million in 2020 but $1.9 billion through the first nine months of 2021. The priciest sale this year was 725 Ponce, which sold for $300.2 million and a market record of $807 per square foot

US Office Asking Rents Hold Steady

Following a 1.2% year-over-year (Y-o-Y) increase, September U.S. office asking rents averaged $38.62 per square foot. Leasing rates held steady on a monthly basis as well, dipping 10 cents compared to August. 

While the surge in COVID infections driven by the delta variant continued to delay return-to-office plans, cases have been falling in recent weeks while vaccination rates have increased. Furthermore, big tech’s ongoing investment in the market reveals offices will still play a key role in the future of employment.

In an individual market analysis, average full-service equivalent listing rates spanned from $22.13 to $83.52 in September. Los Angeles office space ($41.62 per square foot) stands out with the largest yearly increase in asking rents, up 8.1% compared to September 2020. Meanwhile, Tampa ($29.70) and the Bay Area ($55.79) shared the second spot for rent growth, as average listing rates in each of the two markets rose by 6.2% year-over-year. Finally, the average asking rent for office space in Miami ($43.43) grew the third-fastest, up 5.8% compared to the same time last year. 

US Office Vacancy Rate Averages 14.9% Across Top Markets

Office vacancy rates averaged 14.9% in September, decreasing 50 basis points (bps) compared to August. However, the national vacancy rate is still 130 bps higher than in September 2020 and shows significant variation at the market level. Year-over-year, vacancies have increased the most in markets that had a considerable amount of stock delivered in recent years. However, due to quicker recoveries in office-based employment, these markets also have the potential to rebound faster than average and have already shown signs of vacancies cooling in recent months. 

Among the markets with the highest vacancy rates, Austin (15.7%) is a telling example: With 15% of office supply in the city delivered since 2017, vacancies climbed by 510 basis points in the past year. Similarly, vacancy rate growth also averaged 510 basis points in San Francisco and 590 basis points for Seattle office space — the fastest year-over-year rise among the major U.S. office markets. 

Under Construction Pipeline Plateaus at 2.4% of National Stock  

As of September, 158 million square feet of new office space was under construction across major U.S. markets. While the pipeline is still robust, it primarily represents projects started before the pandemic due to extended construction timelines. As a result, starts this year are a more suitable indicator of pandemic trends — in 2021, only 36.2 million square feet of new office space began construction, compared to the 87.2 million square feet of starts registered in 2019.

Notably, after a significant boom, the Denver pipeline has shrunk to 0.6% of the total office stock in the city, with less than 1MSF of supply under construction by the close of September. At the same time, around half a million square feet were under construction in Tampa, accounting for 0.8% of the total office stock.