Office Vacancy Rate Rises 30 Basis Points in One Month

Fresh confirmation, if it was needed, that the U.S. office market is in trouble comes from recent data on vacancy compiled by CommercialEdge in a June 2023 report. 

“The national office vacancy rate in May was 17%, up 30 basis points over the previous month and 160 basis points over the prior year,” the report notes. Even higher rates were recorded in tech markets such as Austin (20.6%), Denver (20.24%) and San Francisco (20%). Vacancy rates in Seattle rose 3.8%, with a sublease vacancy rate of 4.3%.

Markets with the largest share of remote work also saw the highest spike in vacancies.

The national average rent nevertheless rose during the month. The U.S. average full-service equivalent listing rate was $38.36 per square foot in May – up 2.1% year over year and up 13 cents from April. Rates for class A and A+ office space increased 1.7% above the prior year to $46.93 per SF, class B rose 0.3% to $30.38, and class C was up 0.7% to $23.27.

The rate for the top listing in Denver was up 1% to $28.86 year over year — even though vacancy in the metro area rose 3% and it was hit by the loss of 12,000 jobs in the financial activities and information sectors during the year. Other areas with increased rates for the top listings were Washington, DC, Tampa, and Portland, while Chicago and Los Angeles had more modest rate boosts.

In other cities, the trend was definitely more negative. In Brooklyn, for example, the top listed property in April brought $50.71 per SF – down 7.6% or 20 basis points from the previous year. Charlotte experienced a similar percentage drop, down 260 basis points to $29.09. Top listing rates in the Bay Area, Dallas, Miami and Houston were also lower compared to 2022.

Offices in suburban areas benefited from the highest rent increases, rising 3.8% year over year to $30.93 per SF. Interestingly, rents for offices in CBDs rose 2.5% to $51.16 per SF – while urban office space fell by 2.8% to $44.09 per SF. 

The exception to the generally gloomy picture of office vacancies was the life sciences sector. In San Diego, for example, the report attributes higher asking rates reaching $47.83 per SF to this industry. San Diego’s inventory will expand by 10% when 4.9 million SF of office space under construction – or 5.3% of its existing stock — is completed. The only metros with higher rents were the Bay Area, San Francisco, and Manhattan. 

Generally, office markets in the Midwest were the most affordable among the 25 U.S. metros studied. Leasing rates in Chicago, Minneapolis-St. Paul, Orlando, and Dallas-Fort Worth were among the lowest in the nation.

The report describes Austin as “one of the most puzzling markets.” It is leading the back-to-office movement but at 32% also has one of the nation’s highest shares of remote workers and a 4.4% increase in vacancies since 2022. Its listing rate of $42.40 per SF was second only to Miami in the South, and followed by Washington, DC.

In the Northeast, Manhattan far outpaced these rates, with asking rents of $73.57 per SF — but an average vacancy rate of 17% growing faster than anywhere else in the region. In Boston, the asking rate was $34.91, but the vacancy rate was only 10.3%, thanks to its booming life sciences sector. An additional 15.2 million SF of office space is under construction in the metro. Philadelphia recorded the lowest asking rent in the region at $31.11 per SF.