U.S. Office Sales Total $14.8B Halfway Through 2023 

Key Takeaways: 

• The average U.S. office listing rate stood at $37.82 per square foot, up 0.6% year-over-year  
• Up 180 basis points year-over-year, the national vacancy rate was 17.1%    
• Under-construction office space reached 115.8 million square feet nationwide, accounting for 1.7% of total stock   
• Office sales amounted to $14.8 billion through June, with assets trading at $199 per square foot   
• Los Angeles led the West in sales, with $1.11 billion in closed office deals 
• Chicago and the Twin Cities remained among the most affordable office markets in terms of asking rents 
• Austin continued to house the largest supply pipeline on a percentage-of-stock basis, with underway projects accounting for 6.9% of total stock 
• Boston recorded the largest sales volume nationwide, with investors closing $1.28 billion in the first half of the year 

Wider economic shifts fueled by multiple interest rate hikes, the growing prevalence of work from home and the increasing office footprint reductions by companies continued to pressure the office sector throughout the first half of 2023, our latest office market report reveals. 

The national U.S. office vacancy rate reached 17.1%, rising 180 basis points over year-ago figures. At the same time, rent growth remained patchy across the country, with listing rates falling even in some of the priciest markets, such as Manhattan (down 2.8% year-over-year) and the Bay Area (down 5.57%). 

Urban A- and Class B buildings continue to be the hardest hit when it comes to new leases signed, with asking rates slipping and increasing vacancies. The problem intensifies as you move into fringe or suboptimal locations within the urban core.

Peter Kolaczynski, CommercialEdge Senior Manager

Halfway through 2023, office sales totaled $14.8 billion, significantly below the $43.7 billion recorded during the same period in 2022. Overall, markets with a larger life science supply, such as Boston and New Jersey, remained attractive to investors. Besides life sciences, medical office buildings are also expected to stay a favorable property type for investors, our office market outlook shows. 

Listing Rates and Vacancy: Submarket Variance High in Denver 

The national average full-service equivalent listing in June was $37.82, an increase of 0.6% over the last year, according to the latest U.S. office market report. The average rates for A and A+ office spaces have decreased by 1.4% from last year, currently standing at $45.41 per square foot. Class B office rates have inched up by 0.3%, to $30.37 per square foot, and Class C properties also saw a slight increase of 0.3%, to $23.04 year-over-year in June.  

Rents for suburban properties have increased the most, going up by 3.3% to $30.76 per square foot compared to the previous year. On the other hand, CBD office spaces have seen a decrease of 1.7% to $49.02 per square foot, while urban office spaces have gone down by 1.4% to $44.80 per square foot year-over-year in June. 

Top Listings by Metro Area: June 2023 

While the national office vacancy rate stood at 17.1%, more than half of the top 25 markets recorded vacancies above the national average. Vacancy rates in Denver have increased 310 basis points in the last 12 months and currently sit at 20.1%, one of the highest figures among the top 25 markets. Denver also has one of the highest rates of remote work, according to data from the Census Bureau’s American Community Survey. 

Recently, the city government has joined other cities in paying an outside consulting firm to study the feasibility of converting largely vacant towers in the CBD into housing. In the metro’s CBD, the vacancy rate stood at 31.7%, more than double compared to more in-demand submarkets such as Lower Downtown and Cherry Creek.  

Supply: Austin Pipeline Remains Large 

Nationally, 115.8 million square feet of office stock was under construction at the end of the second quarter of the year, accounting for 1.7% of the existing stock. Nonetheless, the under-construction pipeline continued to shrink steadily this year as projects are delivering faster than new ones are starting.  

Office Space Under Construction (Million Sq. Ft.) 

Only 15.7 million square feet of office space has started through the first two quarters, half of what had started during the same period last year. What is more, nearly two-thirds of all starts in 2023 have been in just 10 markets, primarily in those located in the Sunbelt or life science hubs.  

Construction of more than 1.5 million square feet started in Austin this year, the most of any market in the country. Much of that is due to The Republic, a 48-story tower with more than 800,000 square feet of office space along 4th St. While the market has added office jobs at a faster rate than any other market in the country and has the highest office utilization in Kastle’s Back to Work Barometer, there are still risks of oversupply, especially as the vacancy rate continues to rise.  

Transactions: Lab Space in Demand in New Jersey 

The U.S. office market has seen $14.8 billion in transactions during the first half of the year, with properties trading at an average of $199 per square foot.  

2023 Year-to-Date Sales (Millions) 

New Jersey has been one of the more active markets for sales this year, with lab space behind much of the $928 million in closed office deals. Merck's 2-million-square-foot, 108-acre former headquarters at 2000 Galloping Hill was purchased for $187.5 million by a joint venture between Onyx Equities and Machine Investment Group. Many pharmaceutical companies are clustered in New Jersey, driving demand for lab space in the market. 

Western Markets: Los Angeles Records Largest Sales Volume in the West  

Among Western markets, Los Angeles had the largest sales volume, closing $1.11 billion in office deals over the first six months of the year. On a national level, the metro was only outpaced by Manhattan’s $1.27 billion and Boston’s $1.28 billion. Meanwhile, other markets in the West recorded sales volumes below the half-billion-dollar mark, with San Diego’s $482 million sales volume coming in as the second highest in the region. 

Conversely, Seattle’s $73 million total was the third lowest, and Portland’s $77 million total was the fifth lowest among the top 25 office markets in the U.S. Nonetheless, when it comes to sale price per square foot, all markets in the West recorded averages above the national $199 per square foot. San Francisco’s $464 per square foot was the highest, exceeded only by Manhattan’s average sale price of $645 per square foot. 

West Regional Highlights 

As of June, San Diego had the largest development pipeline on a percentage-of-stock basis, with the equivalent of 5.6% of its total stock underway. In terms of square footage, the market had a total of 5.3 million square feet of office space under construction. On the other end of the spectrum stood Los Angeles, with 1.3 million square feet underway, accounting for merely 0.5% of its existing inventory. 

Western markets continued to have some of the largest vacancy rates due to tech sector-driven headwinds. At the end of the first half of the year, San Francisco recorded the highest vacancies in the region, reaching 21.06% and up 3.64% year-over-year. At the same time, thanks to its strong life science sector, San Diego had one of the lowest office vacancy rates in the region, coming in at 15.54% at the end of June. 

San Francisco and the Bay Area also led in asking rents, with listing rates averaging $63.61 per square foot in San Francisco and $53.62 per square foot in the Bay Area. Meanwhile, the lowest asking rent was recorded in Phoenix among the West’s leading markets, closing June at $27.73 per square foot. 

Midwestern Markets: Chicago and the Twin Cities Remain the Most Affordable Office Markets 

Although the Midwest’s major office markets registered lower vacancy rates than leading tech hubs in the West — with Chicago at 18.89% and Minneapolis - St. Paul at 17.48% at the end of June — other key indicators remained sluggish.  

In June, the Twin Cities and Chicago saw the third- and fourth-lowest average listing rates amid the largest U.S. office markets, coming in at $27.25 per square foot and $27.40 per square foot, respectively. Dallas - Fort Worth and Orlando were the only markets that came in below the Midwest’s leading markets, with $27.16 per square foot and $24.50 per square foot, respectively. 

Midwest Regional Highlights 

Minneapolis - St. Paul had the second-lowest supply pipeline nationwide, with only 546,369 square feet of office space underway as of June, equal to 0.5% of the local stock. In terms of square footage, only Tampa’s 261,154-square-foot pipeline was smaller. At the same time, Chicago had an under-construction pipeline of more than 2.3 million square feet, accounting for 0.8% of existing inventory.  

Through the first half of 2023, investors closed $624 million in office deals in Chicago, with properties trading at an average of $106 per square foot — the lowest average price per square foot recorded among the nation’s top 25 office markets. Meanwhile, investors in the Twin Cities closed merely $180 million in office sales, at $217 per square foot. 

Southern Markets: Miami Continues to Record Highest Office Listing Rates in the Region 

At the end of June, Miami was the most expensive office market in the South, with asking rents averaging $46.93 per square foot. Austin and Washington, D.C., also had rates in the $40 range, above the national average of $37.82. On the other hand, Dallas - Fort Worth ($27.16) and Orlando ($24.50) had the lowest rates among the top 25 leading U.S. office markets. 

Houston led the nation in office vacancies, with 23.45% of its space available for lease. This is significantly above the next-highest vacancy rate recorded among the top office markets in the U.S., San Francisco’s 21.06% rate. In the South, Austin and Atlanta had the next-highest vacancy rates at 19.86% and 19.37%, respectively.  

South Regional Highlights 

Over the past 12 months, office vacancies in Austin have increased by 3%, but the metro remains the top developer in the country on a percentage-of-stock basis. Austin's development pipeline reached 6.2 million square feet in June, making up 6.9% of the total stock. Nashville follows with a development pipeline of 3.4 million square feet, accounting for 5.9% of existing inventory. On the other hand, Tampa had the lowest supply pipeline in the U.S., with only 0.3% equal to 261,154 square feet of stock currently underway. 

Office Space Under Construction & Planned (% of stock) 

Washington, D.C., and Houston were the leading Southern markets in terms of sales, with $737 million and $629 million in closed office deals, respectively. Meanwhile, Austin led the region regarding sale prices, with office properties trading at an average of $320 per square foot. Both Nashville and Miami followed with an average sale price of $261 per square foot.  

Northeastern Markets: Boston Leads in Office Sales, Construction 

Office markets in the Northeast continued to lead in sales, with Boston and Manhattan claiming the top two spots nationwide at $1.28 billion and $1.27 billion in office sales, respectively. New Jersey had the third-largest sales volume in the region and the fourth-largest nationwide, with $928 million in closed office transactions. Philadelphia lagged in the region, with a total of $358 million in closed office sales. 

Manhattan also saw the highest average sale price across the U.S., with properties trading at $645 per square foot. Boston came in second in the Northeast with an average sale price of $455 per square foot. In Philadelphia ($177 per square foot) and New Jersey ($140 per square foot), however, properties traded below the $199 per square foot national average.  

Northeast Regional Highlights 

Office vacancies in the Northeast’s top markets remained mostly in the teens, with New Jersey’s 17.34% the highest. Meanwhile, Manhattan’s average vacancy rate grew at the fastest rate in the region, climbing 3.33%. Nonetheless, while Manhattan’s asking rents remained well above the national average, listing rates in New Jersey came in at $34.51 per square foot, below the national average of $37.82 per square foot. 

Boston remained the leader in office development, with an under-construction pipeline of 15.1 million square feet, representing 6.2% of existing inventory. Considering planned projects as well, the metro’s office stock is expected to increase by 12.3%. In terms of square footage, Brooklyn had the smallest pipeline, with just 1.1 million square feet of office space under construction, accounting for 3.1% of total stock.  

Office-Using Employment: Nashville Job Growth Continues Despite Slowing Labor Market 

Office-using sectors have decelerated this year, adding jobs at a slower rate than the labor market every month in 2023. In June, the office-using sectors added 31,000 jobs, according to the Bureau of Labor Statistics, growing 1.7% year-over-year.  

While the slowdown in office using-employment growth is noticeable nationally, metro employment data for May (which trails the national release) shows Sunbelt markets continuing to outpace the rest of the nation, with many markets growing more than 4% year-over-year.  

Office-Using Employment Growth by Sector  

Nashville is one such market, adding more than 14,000 office jobs and growing 4.6% in the last year. The market has been one of the best performers since the recovery from the pandemic, adding 68,000 office jobs since April 2020. This is an increase of 27.3% since the pandemic, the seventh-highest mark among the top 50 markets covered by CommercialEdge. 

Trends & Industry News: Medical Offices’ Stable Performance 

With remote and hybrid work continuing to wreak havoc on the office sector, medical office buildings (MOBs) are increasingly seen as a safe haven and for good reason. MOBs are remarkably consistent from year-to-year, shielded from many of the headaches the office sector has dealt with since March 2020. 

Besides looking for a safe harbor in the current office storm, there are various factors that make MOBs appealing. The population is aging — the U.S. Census Bureau projects that by 2030 there will be more people aged 65 and older than under the age of 18 — which will increase the need for healthcare services. 

Advances in medical technology and treatments have moved procedures that used to require a hospital stay to outpatient care. MOBs are also mostly insulated from recessions because people will continue to need healthcare regardless of the economic conditions. 

Moreover, while medical offices are not immune to the decline in sales volume seen across the office sector, average sales prices have been remarkably consistent over recent years. Between 2017 and 2022, the average sale price of a property primarily used as a medical office stood between $260 and $290 per square foot.  

Through the first half of 2023, the average is $296 per square foot, nearly $100 more per square foot than the national average for all office buildings. Some well-located facilities, such as Park Street Building in New Haven, can blow past that average. Yale New Haven Hospital spent $101.2 million on the building they had long leased space within for an average of $723 per foot. In Washington D.C., Welltower paid $78 million, averaging $489 per square foot, for a MOB at 2021 K Street NW. 

Much like the average sale price, MOB construction starts have been less impacted by the pandemic, staying steady despite the overall decline in all other types of new construction. Between 7 and 8 million square feet of new office space started each year from 2018 through 2021, and last year saw 8.7 million square feet of MOB starts.  

Our office market outlook anticipates demand for medical office buildings to grow in the coming years, with the biggest driver being the aforementioned demographic shifts. In coming years, building owners, especially those with properties near hospitals, may look to convert general offices into medical offices. Telehealth services are a minor threat to medical office demand but are more of a supplement to in-person healthcare than an outright replacement. 

Download the PDF report to view more, including the map for office-using employment growth. 

You can also see our previous office reports. 

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.  

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 average listing rate is for the top 50 markets covered by CommercialEdge.  

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.