Lower Sale Prices and Reduced Development Signal Continued Stress in the Office Sector  

Key Takeaways: 

• Six out of the 25 top U.S. office markets have seen their vacancy rates increase by more than 500 basis points in the last year, with Austin leading with a 650-basis-point surge 
• During 2024, 39.7 million square feet of office space was delivered, while only 9.1 million square feet broke ground 
• Office properties have sold at an average of $179 per square foot, down 9% from the 2023 average sale price 
• The average U.S. office listing rate stood at $32.85 per square foot, up 3.7% year-over-year 
• After a slow start this year, Manhattan is once again the most sought-after market for office investment, logging $3.8 billion in transactions 
• Midwestern markets were the most affordable among top office markets, with asking rents at $27.05 per square foot in Chicago, $26.37 in the Twin Cities and $21.56 in Detroit 

Trends & Industry News

Office Shifts Continued in 2024

The slow transformation of the office sector continued in 2024, as highlighted in our U.S. office market report, with the changes brought upon by the pandemic leading to lower sale prices, reduced development activity and growth in the coworking sector.  

The average sale price of office buildings has fallen in 2024, though the rate of decline slowed compared to last year. Office properties have sold at an average of $179 per square foot year-to-date, down 9% from 2023’s average, which itself was a 24% drop from 2022. Still, the number of offices selling below their previous transaction value has increased this year. As of November, there were 480 such sales, accounting for more than a quarter of all office transactions and surpassing the 389 discounted sales recorded throughout last year. Some office properties even sold at lower prices in 2024 than they did during the 1990s. 

The supply pipeline continued its sharp decline this year, with only 9.1 million square feet of office space starting construction through the end of November. Demand for space remained depressed and U.S. office vacancy rates continued to rise, prompting developers to pull back on all but a handful of projects.  

We’ve entered the beginning of the “slog” phase for what we expect to be a multi-decade transformation of the office industry. We’ve seen some winners and we’ve seen some losers, but the threats of difficulty in refinancing and modest physical occupancy numbers remain.

Peter Kolaczynski, Director, CommercialEdge 

The life sciences sector, which had buoyed office development in the early post-pandemic years, is now grappling with a supply glut as venture capital has pulled back investment and a wave of new space has entered the market. After more than 30 million square feet of lab space broke ground between 2021 and 2023, just 948,000 square feet began construction this year. 

This year saw many high-profile announcements of return-to-office (RTO) plans. Companies like Amazon, Dell and Meta implemented stricter RTO policies, warning employees that failure to appear in the office could impact their chances for promotions or even lead to termination. However, office utilization metrics did not show significant changes so far. Kastle Systems and Kisi Access Control, which use aggregated access data to analyze office utilization, both indicated only minor increases in office usage throughout 2024. 

Meanwhile, coworking space continued to grow as firms sought flexible solutions to the evolving relationship between workers and the office. Between the second and third quarters of this year, the total number of coworking spaces increased by 7%. The total square footage of coworking space rose by 4%, with the average size of a coworking space decreasing by 2% during the same period. 

Listing Rates and Vacancy

Texas Vacancies Grow Following Supply Boom

The national average full-service equivalent listing rate was $32.85 per square foot in November, according to our latest U.S. office market report, up six cents in the month and 3.7% year-over-year. 

The national office vacancy rate was 19.4%, reflecting an increase of 120 basis points year-over-year. 

Top Listings by Metro Area: November 2024 

Six of the top 25 U.S. office markets have seen their vacancy rate increase by more than 500 basis points over the past year. Austin recorded the highest increase, with vacancies rising here by 650 basis points. The market’s strong in-migration and job growth in recent years have not been enough to offset the impact on vacancies of a wave of new supply. According to Kastle Systems, Austin was the top market for office utilization among the 10 markets it tracks, but office usage still remains at roughly two-thirds of pre-pandemic levels. Dallas has also seen a significant vacancy increase, with its rate rising 500 basis points year-over-year, driven by similarly large levels of new supply. 

Other markets with notable vacancy spikes were Boston, with a 630-basis-point increase year-over-year, as well as Portland (620 basis points), the Bay Area (580 basis points) and Philadelphia (530 basis points). 

Supply

Office Development Decline Persists

Nationally, 57.8 million square feet of office space was under construction as of November, representing 0.8% of the total stock, our U.S. office market report reveals. The pipeline shrunk by 3 million square feet in November and by roughly 39 million square feet year-to-date. The decline in the number of projects under construction was consistent throughout the year, with an average reduction of 3.5 million square feet per month. During 2024, 39.7 million square feet of office stock was delivered, while only 9.1 million square feet started construction. 

Office Space Under Construction (Million Sq. Ft.) 

Boston remained the top market for office development throughout the year, holding onto the title in November with 9.2 million square feet underway. This is more than double the second-largest pipeline, San Francisco’s 3.8 million square feet. While Boston’s under-construction stock has dropped 37% year-to-date, consistent with other large markets, the market’s office space underway still represents 16% of the total national pipeline, marking a 1% increase throughout 2024. The total square footage underway attributed to the top 10 markets represented 52% of the pipeline. 

Transactions

Manhattan Tops Sales Volume Once Again

Across the U.S., a total of $32.6 billion in office sales was recorded through the end of November, with properties trading at an average of $179 per square foot.  

After a slow start this year, Manhattan once again led the country in office sales volume, with over $3.8 billion in transactions through November. The finance sector, which has largely returned to the office, is driving activity in the market. JPMorgan Chase purchased 250 Park Avenue for $320 million this summer while also building a tower next door at 270 Park Avenue.  

2024 Year-to-Date Sales (Millions) 

Manhattan was followed at a distance by Washington, D.C., which registered year-to-date sales of over $2.5 billion and by the Bay Area, which recorded $2.1 billion in office sales as of November. Another six leading office markets with year-to-date sales of over $1 billion were Los Angeles ($1.7B), Dallas-Fort Worth ($1.3B), Boston ($1.3B), Atlanta ($1.1B), Miami ($1.1B) and Phoenix ($1B). 

Western Markets

Portland Sees the Slowest Construction Activity Among Top Office Markets

Manhattan regained its national lead in office asking rents, while San Francisco is back in second place, with asking rents averaging $68.81 per square foot. This high average rate in the San Francisco market is primarily driven by the Silicon Valley, where asking rates averaged over $115 per square foot, while downtown San Francisco posted rents at nearly half the rates of the premium suburban markets. The Bay Area remained the second-most expensive market in the West and third nationally, with rents averaging $54.04 per square foot. 

Despite being the most expensive office markets in the West, San Francisco and the Bay Area also posted the highest vacancy rates nationwide, reflecting ongoing challenges in the markets. San Francisco led with a 28.2% vacancy rate, marking a 400-basis points increase year-over-year. The Bay Area followed closely, recording a 26.1% rate, up 580 basis points over the same period. 

Portland stood out with the third-highest year-over-year vacancy increase nationally, as its rate rose by 620 basis points to 22.1%. The market also posted the lowest asking rents in the West and fifth-lowest nationwide at $28.19 per square foot. Portland’s construction pipeline remained the smallest among top U.S. office markets, with just 63,500 square feet in progress as of November (0.1% of its total stock). The entire pipeline comprises a single facility that broke ground in July 2023, with no new construction starts since then. Sales activity in Portland also stalled, with only $222 million in office transactions recorded through November — the smallest volume in the region and third-smallest nationwide. Properties here traded at an average of $164 per square foot, slightly below the national average.  

West Regional Highlights 

Phoenix recorded one of the lowest vacancy rates in the West at 19.5%, still exceeding the national average. The market also posted the second-lowest asking rents in the region, averaging $28.20 per square foot. Phoenix distinguished itself among the few office markets in the West to surpass $1 billion in office sales through November. However, sale prices in the market remained below the national average, at $164 per square foot.  

The only other Western markets with sales volumes exceeding $1 billion were the Bay Area ($2.1 billion) and Los Angeles ($1.8 billion). San Francisco continued to lead the nation in sale prices, with properties trading at an average of $384 per square foot. This was mainly driven by high-value transactions in the market’s suburban areas, where sale prices averaged $471 per square foot. By contrast, office properties in dowtown San Francisco sold at an average of $270 per square foot as of November. 

Regarding office development, Seattle experienced the steepest decline among Western markets. The market’s pipeline shrank from 6.6 million square feet a year ago to roughly 1.8 million square feet as of November. No new construction projects have broken ground since May 2023, reflecting weakened demand. This present situation also contributed to a significant increase in Seattle’s vacancy rate, which rose 370 basis points year-over-year to 26%.

Midwestern Markets 

Midwestern Markets the Most Affordable Nationwide

Midwestern markets continued to post some of the lowest sale prices in the nation, with only the Twin Cities surpassing the $100-per-square-foot mark, with properties trading at $111 per square foot in November. Chicago and Detroit stood at $97 and $80 per square foot, respectively, with Detroit recording the lowest average sale price among all markets covered within our U.S. office market report. Moreover, Detroit was also the market with the lowest asking rents, at only $21.56 per square foot. Minneapolis-St. Paul and Chicago closely followed with $26.37 and $27.05 per square foot, respectively.  

Amid discounted office sales and low asking rents, Detroit also continued to face weakened demand. With a 25.2% vacancy rate, the market posted the highest rate in the Midwest and the eighth in the nation. On the other hand, Chicago’s office market is seeing a slight improvement in office occupancy rate, with a 17.8% rate as of November, down 50 basis points year-over-year. 

Midwest Regional Highlights

Chicago led the Midwest in office construction with an 828,000-square-foot pipeline. However, that represents only 0.3% of the market’s total stock, marking the second-smallest pipeline among top U.S. office markets on a percentage-of-stock basis. 

As of November, almost 554,000 square feet of office space was under construction in Detroit, similar to the 524,000 square feet underway a year ago. Meanwhile, the Twin Cities only had 400,000 square feet in progress, the second-lowest office pipeline among the top office markets, only surpassing Portland’s 63,500-square-foot pipeline. 

Southern Markets

Sales Activity Still Strong in Washington, D.C.

The South remained a region of contrasts, with some markets boasting strong fundamentals while others faced significant challenges amid shifting office market dynamics. Austin recorded the second-highest office vacancy rate nationwide at 27.7%, just behind San Francisco. This represents a 650-basis-point growth year-over-year, the sharpest jump among major U.S. office markets. Despite the vacancy spikes, Austin remained the second-most expensive market in the region, with asking rents averaging $46.69 per square foot.  

Dallas-Fort Worth also saw a notable increase in vacancy, with rates rising 500 basis points year-over-year to reach 23.9%. Asking rents in the Metroplex stayed below the national average, at $31.39 per square foot. Regarding sales activity, the market remained one of the most active for office investment, recording $1.3 billion in sales through November. However, properties in Dallas traded at an average of $115 per square foot, down significantly from $185 per square foot a year ago. 

Miami continued to be the most expensive office market in the South and fifth nationally, with asking rents averaging $52.84 per square foot. The market also posted the highest average sale price in the region and third-highest nationally, at $376 per square foot. 

South Regional Highlights

At the other end of the spectrum, Orlando stood out with the fourth-lowest asking rents among leading U.S. office markets, averaging $28.06 per square foot. In contrast to the broader trends in the South, Orlando was one of the few markets to see an improvement in office occupancy, with its vacancy rate declining by 50 basis points year-over-year to 16.7%. While the market recorded the second-smallest sales volume nationwide — just $198 million in transactions through November — properties in Orlando traded at $217 per square foot, the fourth-highest price in the region. 

Washington, D.C., remained the most sought-after market for office investment in the South and ranked second nationally behind Manhattan. The Capital City logged $2.5 billion in office transactions through November, exceeding the total recorded for all of 2023. Properties in Washington, D.C., traded at an average of $213 per square foot, slightly above the year-ago average of $204 per square foot. However, the trend of discounted sales continued throughout 2024. Such example is the sale of an office building at 1899 L Street Northwest for $26.7 million this year, significantly lower than its $43.7 million purchase price back in 2004. 

However, in terms of development activity, Washington, D.C., saw its pipeline shrink by more than half year-over-year, decreasing from 3.6 million square feet to 1.5 million square feet. Over 2.2 million square feet was delivered since the start of 2024, while the last office project to break ground occurred in late 2023. The vacancy rate in the market reached 18.2%, representing a 140-basis-point increase year-over-year. 

Northeastern Markets

Boston Among Top Five Most Expensive U.S. Markets

Despite logging a total year-to-date sales volume of $3.8 billion - the highest nationwide - Manhattan ranked second in sale prices for the second month in a row. In November, sale prices in Manhattan stood at $379 per square foot, while San Francisco registered a slightly higher rate of $384 per square foot.  

Boston was the only other Northeast market apart from Manhattan to exceed the national average sale price, logging a price of $182 per square foot as of November. Otherwise, markets from the West and the South were generally the most expensive. New Jersey and Philadelphia were among the most affordable markets nationwide in terms of average sale prices, with properties trading at $100 per square foot in New Jersey and $81 per square foot in Philadelphia. 

As a result of continued demand in the area, Boston ranked as the fourth most expensive market in the nation, with asking rents averaging $53.35 per square foot. However, rental rates in the market stalled from the previous month after registering persistent growth throughout the year.  

Northeast Regional Highlights 

After being surpassed by San Francisco in October for the first time in years, Manhattan took back its position as the most expensive office market nationwide, with asking rents at $68.87 per square foot, more than double the national average. Conversely, Philadelphia stood slightly below the national average, with asking rents at $31.49 per square foot, the lowest rate in the region. 

Office development activity remained strong in Northeastern markets like Manhattan and Philadelphia, with 2.7 million and 2 million square feet underway, respectively. However, these markets are still surpassed by Western and Southern markets like San Francisco (3.8 million square feet), Austin (3.6 million), San Diego (3.1 million) and Dallas-Fort Worth (3 million).  

Boston continued to lead the nation in office construction, with 9.2 million square feet of space currently in progress, more than twice the pipeline of runner-up San Francisco. Boston also ranked second nationally in development activity on a percentage-of-stock basis, with office projects accounting for 3.6% of its total stock, on par with Nashville and surpassed only by Austin (3.7%). 

Office occupancy rates in Boston and Manhattan still trailed the national average, with rates resting at 16.8% and 16.5%, respectively. However, Boston has seen a significant uptick in office vacancy over the past year, with its rate rising by 630 basis points year-over-year, the second-highest growth across top U.S. office markets. Meanwhile, Philadelphia saw the highest office vacancy rate in the region at 19.7%, marking a notable increase of 530 basis points over the past 12 months. New Jersey followed, with a 19.4% vacancy rate.

Office-Using Employment  

Miami Employment Growth Cools

Office-using sectors of the labor market added 43,000 jobs in November, growing by 0.4% year-over-year. Most of this gain came from the Professional and Business Services sector, which added 26,000 jobs. Meanwhile, the Financial Activities sector added 17,000 jobs, its largest monthly gain of the year. In contrast, the Information sector showed no change in November. 

Office Using Employment 

Metro-level data for October, which trails the national release, showed that six of the eight metros with positive office employment growth were in the Sun Belt. Miami (0.7%) remained a top performer in year-over-year growth. However, despite being the leading market for most of the year, Miami has fallen behind Charlotte (1.6%), Phoenix (1.5%), Dallas-Fort Worth (1.3%) and Washington, D.C. (0.7%) while remaining ahead of Houston (0.6%) and Denver (0.5%). 

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Methodology 

This report covers office buildings 25,000 square feet and above. CommercialEdge subscribers have access to more than 14,000,000 property records and 300,000 listings for a continually growing list of markets.  

Get access to over 13M commercial property records with regularly verified commercial data, including local market insights, true ownership and construction projects with CommercialEdge Research. 

CommercialEdge collects listing rate and occupancy data using proprietary methods.  

Listing Rates — Listing Rates are full-service rates or “full-service equivalent” for spaces that were available as of the report period. CommercialEdge uses aggregated and anonymized expense data to create full-service equivalent rates from triple-net and modified gross listings. Expense data is available to CommercialEdge subscribers. National listing rate is an average of all markets. Prior to July 2024, this report used the top 50 markets for a national average.

Vacancy — The total square feet vacant in a market, including subleases, divided by the total square feet of office space in that market. Owner-occupied buildings are not included in vacancy calculations.  

A and A+/Trophy buildings have been combined for reporting purposes.  

Stage of the supply pipeline:  

Planned — Buildings that are currently in the process of acquiring zoning approval and permits but have not yet begun construction.  

Under Construction — Buildings for which construction and excavation has begun.  

Office-Using Employment is defined by the Bureau of Labor Statistics as including the sectors Information, Financial Activities, and Professional and Business Services. Employment numbers are representative of the Metropolitan Statistical Area and do not necessarily align exactly with CommercialEdge market boundaries.  

Sales volume and price-per-square-foot calculations for portfolio transactions or those with unpublished dollar values are estimated using sales comps based on similar sales in the market and submarket, use type, location and asset ratings, sale date and property size.  

Year-to-date metrics and data include the time period between January 1 of the current year through the month prior to publishing the report.    

Market boundaries in the CommercialEdge office report coincide with the ones defined by the CommercialEdge Markets Map and may differ from regional boundaries defined by other sources. 

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