Office properties in key markets continue to sell at lower prices than they did before the pandemic, according to a Commercial Edge national market report.
The average sale price of office space in Chicago, for example, has dropped by more than half from $217 per square foot to $98 per square foot. Beacon Capital Partners acquired 333 West Wacker Drive for $125 million earlier this year, representing Chicago's largest office sale in two years. This was a steep discount to the $320 million the property fetched in 2015, the report noted.
Nearly $24 billion in office sales have been recorded across the country through the end of September, with properties trading at an average of $171 per square foot. Transactions have maintained a steady pace in markets like Manhattan, Washington, D.C., the Bay Area and Dallas-Fort Worth. Los Angeles, Phoenix and Boston each neared the $1 billion mark for office sales through the third quarter.
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Western markets remained among the most expensive for office in the United States, led by San Francisco with an average asking rent of $67.33 per square foot, nearly matching Manhattan's median of $67.93 per square foot. Only Denver, Phoenix and Portland posted average asking rents below the national average among Western markets.
Office vacancy in San Francisco increased 350 basis points to 27.8%, while Seattle's grew 390 bps to 26.2% and in the Bay Area by 540 bps to 25.3%. Los Angeles, on the other hand, had the tightest office market in the West and the third nationally with 16.3% available office space as of September, the report said.
Across the country, office utilization remained unchanged and vacancy rates continued to rise despite recent return-to-office mandates at major companies. The national office vacancy rate stood at 19.5% through the third quarter, up 170 bps year-over-year, and utilization averaged 50% across the country. Commercial Edge noted many companies that have failed to bring workers back to the office with amenities are now considering penalizing employees who don't comply with mandates.
Bucking the overall trend, Manhattan's office occupancy is improving, with the vacancy rate dropping 90 bps year-over-year to 16.8%, as of September. Office space under construction totaled 98.5 million square feet at the end of September, of which only 9.3 million square feet broke ground this year.
Austin and Seattle, both of which had steady development during the first two years of the pandemic – but both watched new development activity nearly halt in 2023. Seattle has experienced one of the most significant slowdowns in office construction among Western markets, with no new projects breaking ground so far this year.
Meanwhile, Los Angeles defies the general trend, maintaining a steady pace of office construction with 2.5 million square feet in the pipeline.
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Kristen Smithberg
Kristen Smithberg is a Colorado-based freelance writer who covers commercial real estate, insurance, benefits and retirement topics for BenefitsPRO and other industry publications.
