National Office Sales Volume at $25 Billion Through the First Three Quarters of 2023

Key Takeaways: 

• The average U.S. office listing rate stood at $37.78 per square foot, up 30 basis points year-over-year 
• Up 120 basis points year-over-year, the national vacancy rate reached 17.8% at the end of September 
• There were 106 million square feet of office space under construction, accounting for 1.6% of existing stock 
• Office sales totaled $25 billion through the first three quarters of the year, with assets trading at $198 per square foot 
• San Francisco posted the second-highest vacancy rate nationwide at 24.2%, up 450 basis points over year-ago figures 
• Chicago logged $830 million in sales through September, with properties trading at $110 per square foot 
• Austin vacancies rose 360 basis points to 21.2%, likely due to recent high-volume deliveries 
• Boston leads in office development thanks to intense lab space construction in the metro 

Trends & Industry News: Mixed-Use Clusters Can Spark Suburbs 

Hybrid and remote work have changed how people utilize offices and where they live. Many workers left the city center during the pandemic for the suburbs, and some employers are looking to follow, our latest U.S. office market report confirms. 

Amenities play an important role in worker return-to-office calculations, not only the ones offered inside an office building but also those around it. Firms relocating to the suburbs seek live-work-play hubs in master-planned communities that imitate city centers. 

Many workers, particularly younger ones, prefer having walkable areas and access to amenities near their workplaces, even if they are located in the suburbs. The suburban office campus surrounded by a sea of parking lots is on its way out, and there is immense opportunity to repurpose these assets into mixed-used clusters that attract shoppers and provide desirable amenities to office workers. 

According to employee surveys, commute times are the most significant factor affecting the decision to return to the office. In markets with high traffic levels, access to transit will be crucial for the success of these developments, our office real estate outlook anticipates. 

What we refer to as “urban suburbs” are walkable and amenity-rich suburban neighborhoods that can support new mixed-use developments. These are proving to be a rare bright spot for office leasing activity and future development, even if office portions in future developments may be at a smaller scale than previously proposed.

Peter Kolaczynski, CommercialEdge Senior Manager

Firms that have a workforce spread over a large area may choose to use a hub-and-spoke system. This involves keeping a central “hub” office (usually smaller) while opening smaller satellite offices in the suburbs for workers living there. In addition, the development of large mixed-use projects will require the cooperation and coordination of private developers and public entities, each playing a crucial role. 

Suburban offices that cannot provide mixed-use destinations for workers may be targeted for conversion, which will differ from the repurposing of urban assets. In city centers, the focus is on turning vacant offices into much-needed housing. While suburban offices face fewer logistical hurdles to housing conversion than office towers, a suburban office that isn’t amenitized enough to attract workers may not be an ideal location for housing either. According to our office real estate outlook, we anticipate that, subject to zoning, suburban office conversions may target infill industrial facilities for last-mile delivery or data centers.  

Listing Rates and Vacancy: Suburban Offices See 2.1% Rent Increases Over Year-Ago Figures 

The national average full-service equivalent listing rate was $37.78 per square foot in September, according to our U.S. office market report. That represented an increase of 0.3% over the previous year but down five cents over August 2023.  

Listing rates across A and A+ office spaces stood at $45.55 per square foot, up by a mere 0.2% over year-ago figures. At the same time, Class B office rates fell 0.4% to $30.33 per square foot, while rates for Class C spaces increased 1.5% to $23.45 year-over-year in September. 

Top Listings by Metro Area: September 2023 

Location-wise, suburban assets remained in the lead for rent increases, rising 2.1% year-over-year to $30.79 per square foot, followed by urban offices, with rents increasing 0.5% over the same period to $44.69. In comparison, listing rates for CBD offices fell 2% over year-ago figures to $48.53 per square foot.  

The U.S. national vacancy rate in September was 17.8%, rising 120 basis points year-over-year. Office occupancy rates remained the lowest within CBDs, where vacant spaces accounted for 19.3% of stock in September. At the same time, urban (17.5%) and suburban (17.2%) office assets registered vacancy rates below the national average.   

Nationally, Austin registered one of the sharpest vacancy rate increases, climbing 3.6% year-over-year to 21.2%. The declining office occupancy rate in the metro might partly be attributed to the high amount of space delivered in recent years: Since 2018, Austin’s office stock expanded by more than 15 million square feet. 

Supply: Life Sciences Drives Office Construction Across the U.S. 

Nationally, 106.5 million square feet of office space was under construction at the end of September, representing 1.6% of existing stock. Although office development has slowed in recent years as a result of falling demand and surging vacancies, lab space remains desirable due to recent scientific breakthroughs and an aging population. 

Office Space Under Construction (Million Sq. Ft.) 

Nationwide, 22% of all office space currently under construction is designated for life sciences buildings. 

Boston, already the largest lab space market in the country, is seeing the most development from this life science wave. Despite the life science sector's slowdown of venture capital funding in 2023, financing for new life science projects in the Boston market remains available in 2023. Tishman Speyer acquired a $750 million construction loan over the summer to develop the Harvard Enterprise Research Campus in Allston. 

Transactions: Year-to-Date Sales Reach Only $25 Billion, One-Third of Year-Ago Volumes 

The U.S. office market has seen $25 billion in office sales through the first three quarters of the year, significantly below the $69.3 billion logged over the same period in 2022. The average sale price per square foot also fell 21% (more than $50 per square foot) over year-ago figures, with properties trading at an average of $198 per square foot through Q3 2023. 

2023 Year-to-Date Sales (Millions) 

However, properties have traded at an average of $349 per foot in Miami in 2023 — a decline of 10% over last year — led by the $250 million ($602 per foot) purchase of 801 Brickell by Monarch Alternative Capital. Miami has emerged as a corporate relocation magnet since the beginning of the pandemic, and the high-end Brickell submarket has thrived, unlike other city centers. 

Western Markets: Los Angeles Logs Most Robust Sales Volume Nationwide with $1.98 Billion 

U.S. office vacancy rates continued to soar in the West in September as tenants struggled to navigate their long-term occupancy strategies amid remote and hybrid work options. San Francisco’s vacancy rate increased 4.5% year-over-year, reaching 24.2% — the second-highest rate among the largest U.S. office markets, exceeded only by Houston’s 24.9% rate.  

Similar to trends observed in previous months, Seattle recorded the most significant spike in vacancy rates, rising 5% year-over-year to 22.3%. The jump in vacancy rates might be attributed to Microsoft vacating 750,000 square feet of space at Bravern 1 & 2 in Bellevue’s Central Business District, a JLL report revealed. U.S. office vacancy rates also stood in the twenties in Denver (at 20.7%) and in the Bay Area (20%) — the latter also saw a 3.7% uptick year-over-year.  

West Regional Highlights  

While Western regions remained among the priciest office markets nationwide, asking rents decreased in several metros in the area. For example, listing rates in San Francisco fell 2.4% year-over-year to an average of $65.18 per square foot. Meanwhile, Los Angeles saw a 2.9% dip over the same period, with asking rents coming in at $41.81 per square foot. Asking rates in San Diego fell 1.7% year-over-year to $43.14 per square foot, while the Bay Area recorded a moderate decrease of 0.2%, with asking rates reaching $53.80 per square foot. 

In terms of new supply, San Diego had the largest development pipeline, 5.2 million square feet (accounting for 5.4% of its existing inventory) underway. Considering planned projects, the market is set to increase its office footprint by 9.1%. Seattle came next with under-construction office projects encompassing 6.9 million square feet of space, equal to 5% of its total stock. 

From a transactional perspective, Los Angeles led the nation in sales volume and was the only Western market to surpass the $1 billion mark, with $1.98 billion in closed deals. Phoenix recorded the next-largest sales volume in the region at $917 million, and the Bay Area followed closely behind with $879 million in transactions.  

However, San Diego claimed the highest average year-to-date sale price in the West at $407 per square foot, outpaced only by Austin’s average of $425 and Manhattan’s $568 per square foot. The Bay Area saw the next-highest sale price at $327 per square foot, followed by San Francisco’s $321 and Los Angeles’ $308 per square foot.  

Midwestern Markets: Chicago Records $830 Million in Sales in the First Three Quarters of the Year 

Although Chicago continued to post the lowest year-to-date sale price per square foot among the largest U.S. office markets, at just $110 per square foot, the metro amassed $830 million in sales through September. This is well above leading markets in the West such as San Francisco’s $571 million and San Diego’s $535 million sales volume.  

At the same time, office assets in the Twin Cities traded at an average of $223 per square foot, above the $198 national average. Nonetheless, sales totaled $430 million in the metro — the seventh-lowest office sales volume in the U.S., our U.S. office market report shows. 

Midwest Regional Highlights

Regarding of asking rents, the Midwest’s top two office markets continued to post some of the most affordable prices across the nation. Only Orlando’s $24.31 per-square-foot rent was lower than the Twin Cities’ $26.71 per square foot. Chicago’s $28.11 per square foot was the fifth-lowest rate across the top office markets, $9.67 below the national figure of $37.78 per square foot. 

In September, Minneapolis – St. Paul had the lowest supply pipeline nationwide, with only 581,313 square feet of office space under construction, representing 0.5% of existing stock. At the same time, Chicago had more than 3.4 million square feet of office space underway, equal to 1.1% of its total inventory. 

Southern Markets: Austin Vacancies Surge 3.6% Year-over-Year Despite Positive Drivers 

Examining office sector patterns in the southern region, Austin stood out as one of the most puzzling markets. Although the metropolitan area consistently maintains one of the top positions for physical office occupancy in Kastle's Back-to-Work Barometer, the vacancy rate in Austin has surged by 3.6% to 21.2%, making it the fourth-highest rate among leading markets. 

New deliveries have led to an increase in vacancies in Austin. Over 15 million square feet of space have been added since the beginning of 2018, making up 16.6% of the total stock. Despite stronger office usage than in other markets, occupancy levels in Austin have only reached around 60% of pre-COVID-19 levels. 

South Regional Highlights  

Houston continued to record the lowest office occupancy rates nationwide, with the vacancy rate at 24.9%. Looking at Southern markets, Dallas–Fort Worth and Atlanta were the only other metros to record vacancies above the 17.8% national figure, coming in at 19% and 18.7%, respectively. In contrast, Tampa saw the lowest vacancy rate in the region, at 15.1%. 

In terms of asking rates, Austin's average rate of $42.26 per square foot was exceeded only by Miami's $45.47 per square foot and was slightly above Washington, D.C.'s rate of $40.57 per square foot. The next-priciest markets in the region were Charlotte and Atlanta, with asking rents of $32.23 per square foot and $31.41 per square foot, respectively, well below the $37.68 national average. 

On a percentage-of-stock basis, Austin remained the leader in office development across the country's top markets, with 6.6% (encompassing nearly 6 million square feet) of its total inventory underway. Considering planned projects as well, the metro is looking to expand its footprint by 25.6% in the near future. Nashville had the second-largest development pipeline in the South, with 5.3% of its existing stock under construction, accounting for more than 3 million square feet. 

Washington, D.C., and Houston logged the most robust sales volumes in the South, closing office deals worth $1.32 billion and $1.13 billion, respectively. Miami recorded $928 million and Austin followed with $863 million in transactions. 

Austin also claimed the highest average year-to-date sale price in the South and the second-highest nationwide, with properties trading at $425 per square foot. Miami followed with an average price of $349 per square foot. Conversely, Houston recorded the lowest price at $128 per square foot, below the $198 national average. 

Northeastern Markets: Boston Remains a Life Science Haven for Developers 

Manhattan continued to post the steepest asking rent in the U.S., closing September at $70.05 per square foot, equal to a 0.5% year-over-year contraction. Following Manhattan, Brooklyn was the second-most expensive office market in the Northeast, with an average asking rent of $45.46 per square foot, slightly higher than Boston's $44.88 per-square-foot rent. Meanwhile, Philadelphia's and New Jersey's rents were $30.93 per square foot and $34.53 per square foot, respectively. 

Manhattan also recorded the most significant sales volume in the region and the second-largest across the country, closing $1.65 billion in office sales. Boston had the next-highest sales volume at $1.35 billion. New Jersey also recorded a sales volume above the $1 billion mark, with $1.16 billion in closed office deals. At the same time, office transactions amounted to $581 million in Philadelphia. 

Northeast Regional Highlights  

And while Philadelphia's and New Jersey's average year-to-date sale prices of $179 per square foot and $151 per square foot were under the $198 per square foot national average, Manhattan led the nation with a price per square foot of $568. Meanwhile, Boston's $314 per square foot sale price was the sixth-highest among the largest U.S. office markets, our latest U.S. office market report reveals. 

Boston remained home to the largest development pipeline in the Northeast, with nearly 14.5 million square feet under construction, equal to 5.8% of existing inventory. Over 75% of the upcoming projects in Boston are focused on properties primarily designated for life sciences use, and the market represents over one-third of all the life sciences space currently underway across the nation. 

In terms of square footage, Manhattan had the second-largest new-supply pipeline in the region, with 6.5 million square feet of office space under development, accounting for 1.4% of total stock. Meanwhile, Brooklyn's 1.1 million-square-foot pipeline represented 3.1% of its total inventory. 

Office-Using Employment: Nationwide Slowdown Continues 

Office-using sectors of the labor market added 19,000 jobs in September, according to the Bureau of Labor Statistics. 

This was the first month since May that the three sectors (Financial Activities, Information, Professional and Business Services) combined to add jobs. From June through August, office-using employment declined by 50,000 jobs. Year-to-date, office-using sectors have added 177,000 jobs nationally, a sharp decline from the 959,000 jobs added through September last year and the 1.2 million added through September in 2021. 

Office-Using Employment Growth by Sector 

Metro-level data, which trails the national release, shows a widespread slowdown through August, with nearly every market seeing decelerating job growth or outright job losses. Of the 120 markets covered by CommercialEdge, 42 have seen job losses in office-using sectors year-over-year, and 43 others have seen less than 2% growth. This is particularly concerning for the office sector, which needs new job formation to help cover the loss of demand resulting from remote and hybrid work. 

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.