Office Utilization Shifts Bring Down Property Valuations

Key Takeaways: 

• The average sale price for office buildings fell by 11% year-over-year, to an average of $174 per square foot at the end of 2024 
• The national vacancy rate stood at 19.7% in January, up 180 basis points year-over-year 
• Construction starts decreased by 67% in January from the 27.5 million square feet of office starts recorded throughout 2024 
• Manhattan remained the most active market for office transactions in 2024, leading the nation with a total of $4.9 billion in sales volume 
• Despite continuing to lead the nation in office construction, Boston’s pipeline suffered a significant year-over-year decline from 14.5 million square feet under construction a year prior to only 7.3 million in January 2025 

Trends & Industry News

Office Valuations on a Downward Trend Throughout 2024 

Office sale prices continued to slip in 2024, as the office market navigates the rise of the remote and hybrid work models and grapples with uncertainty surrounding the future of office utilization. 

The average price of an office building fell by 11% year-over-year to $174 per square foot at the end of 2024, as highlighted in our U.S. office market report, down from $196 per square foot in 2023. However, the drop was not as severe as 2023’s, when the average sale price of an office asset decreased by 24% year-over-year. The office sector suffered massive devaluation since the onset of the pandemic, with the national average sale price of an office down by 37% since 2019.  

Highly rated properties and those in commercial business districts (CBDs) saw the biggest declines in sale prices throughout last year. Class A or A+ properties decreased by 22% in 2024, while Class B properties slipped just 3% year-over-year. Similarly, the average sale price of CBD buildings fell by 28%, while suburban properties decreased by 15%. Conversely, properties in urban submarkets, defined as within a city center but outside the CBD, increased by 7% during the same period.  

The registered declines are largely consistent with the trends in office valuations since COVID upended the sector. Class A and A+ buildings have dropped by 47% since 2019, while Class B properties have decreased by 20%. CBD property prices have dropped a whopping 60% in the last five years, while buildings in suburban submarkets have fallen 32% and those in urban submarkets have dropped 24%. 

Many are speculating that office valuations have “bottomed out”, which we agree with in part. Highly amenitized buildings in desirable locations have likely seen the floor, however, the volume of distressed assets being sold as more buildings’ fate are determined still pose a threat to regional and national averages that we monitor.

Peter Kolaczynski, Director, CommercialEdge 

The number of discounted office sales surged throughout last year. Nearly 600 buildings, representing over a third of all office properties with a known sale value in 2024, traded at a lower price than the value held previous to the transaction. This was an increase from 2023, when 386 discounted sales were logged in our database. For the most part, these transactions represented significant discounts, with more than a third of such sales registered in 2024 trading at less than half of their previous sale price. Another third of the total transactions traded at more than a 20% discount. The most extreme discount seen last year was 135 West 50th Street in Manhattan, which sold for $8.5 million, down 97% from its 2006 sale price of $332 million.  

Despite lower sale prices in nearly every market and a substantial portion of office properties trading at significant discounts, not all properties have seen values plummet, as the most desirable properties continue to demand premium prices. Office real estate outlooks expect that this gap will continue to grow as the office market evolves and adapts to the new status quo. 

Listing Rates and Vacancy

Florida Posts Some of Nation’s Lowest Vacancy Rates 

The national average full-service equivalent listing rate was $33.38 per square foot in January, according to our latest U.S. office market report, up 27 cents in the month and 5.8% year-over-year. 

The national U.S. office vacancy rate stood at 19.7%, a monthly decrease of 10 basis points, but up 180 points year-over-year. Vacancy rates have risen steadily for years now, as the adoption of remote and hybrid work has become more widespread.  

Top Listings by Metro Area: January 2025

While every market witnessed surging vacancies in recent years, some places saw sharper increases than others. Six of the top 25 U.S. office markets saw their vacancy rate increase by more than 500 basis points in 2024. Austin experienced the biggest jump, with a vacancy rate that grew 690 basis points since December 2023, reaching 27.9%. Other markets with significant vacancy increases in 2024 were the Bay Area and Portland (both at 620 basis points), San Francisco and Philadelphia (both at 520 basis points) as well as Boston (510 basis points).

Supply

Construction Starts Continue to Tumble 

Nationally, 44.1 million square feet of office stock was delivered in 2024, the fourth year in a row to witness a year-over-year decline. Only 9.1 million square feet of construction projects broke ground over the past twelve months, bringing office pipeline down to 50.8 million square feet currently under construction, 0.7% of the total stock. The drop in starts represented a 67% decrease from the 27.5 million square feet of office starts registered during the previous twelve months, continuing the decline started during the COVID pandemic. 

Office Space Under Construction (Million Sq. Ft.) 

In his semi-annual report to congress, Jerome Powell stated that rate cuts will be put on hold until concerns about inflation improve or an unexpected fall in the labor market occurs. However, with the current tariffs on China and other tariffs looming on the horizon, uncertainty about future inflation is unlikely to improve. Unless the market receives a boost, the activity reduction will likely continue into the future as demand declines and new construction projects become increasingly difficult to finance. 

Transactions

2024 Sales Volume Still Below Historic Norm  

Across the U.S., a total of $41 billion in office sales was recorded through the end of 2024, with properties trading at an average of $174 per square foot, according to our U.S. office market report. Total sales volume was up by $3.2 billion year-over-year, while prices fell by $22 per square foot. Since 2019, yearly sales volume fell by $82 billion and prices decreased by $103 per square foot. Despite the recent uptick, sales volume remains far below the historic norm. 

Year-To-Date Sale Price Per Square Foot

Prices in Manhattan had the largest yearly drop in 2024, falling by $488 per square foot. In spite of this, Manhattan remains the top market for office investment with $4.9 billion in sales registered in 2024, up $1.5 billion from 2023. 

Western Markets

Office Transactions Remain Strong Despite High Vacancies 

San Francisco maintained the highest U.S. office vacancy rate at 29.3% by the end of January 2025, marking a 560-basis-point year-over-year increase, one of the highest nationwide. However, the most significant yearly surge was seen in the Bay Area, where the vacancy rate grew by 640 basis points to 26.3%, the fourth highest rate nationally. Seattle and Denver ranked among the five markets with the highest vacancies nationwide, at 26.4% and 24.9%, respectively. Meanwhile, Los Angeles had the lowest vacancy rate among Western markets and one of the lowest in the country at 16.4%. 

Regarding office transactions, most Western markets continued to see properties trading at rates above the national average at the end of 2024, with San Francisco leading the region at $345 per square foot, followed by the Bay Area at $288 per square foot and Los Angeles at $272 per square foot.  

In terms of total sales volume, Los Angeles recorded the largest transaction volume in the region and the third-largest nationally, reaching $3.2 billion throughout 2024. The Bay Area was the only other Western market to surpass $2 billion in total office sales, closing the year at $2.3 billion. In contrast, Portland and the Inland Empire saw the lowest sales volumes in the region and nationally, behind only Denver, with $291 million and $266 million, respectively. 

West Regional Highlights 

Regarding asking rents, the Bay Area ranked fourth among the nation’s most expensive office markets, closing the month at $54.38 per square foot. San Diego ($42.57), Los Angeles ($42.01) and Seattle ($35.93) all posted rates above the national average of $33.38 per square foot. Notably, Phoenix saw a 3.2% year-over-year growth in asking rents, highlighting that the office sector in the area remains competitive, even amidst high vacancy rates. 

San Francisco, which had the second-largest office pipeline in December, fell to third place nationally in January, with 3.5 million square feet under construction, as Austin edged ahead with 3.6 million square feet. San Diego was closely behind, reaching 3.2 million square feet by the end of the month. Meanwhile, Portland remained at the bottom of the top 25 markets for office construction, with under 64,000 square feet in development—underscoring the stark contrasts in construction activity across the region.

Midwestern Markets 

Lowest Sale Prices in the Nation Seen in Midwestern Markets 

The Midwest posted the lowest sale prices for office assets nationwide, with no market reaching an average of $100 per square foot as of December 2024. Chicago’s office assets traded for an average of $83 per square foot and Detroit’s for $81 per square foot. Despite these lower prices, Chicago saw strong transaction activity, with office sales reaching $1.7 billion through 2024 —the sixth-highest volume among the top 25 markets.  

Meanwhile, office development in the Midwest remained limited in the first month of 2025, with all markets having under 1 million square feet of space underway. Chicago led the region with 870,000 square feet under construction, a pipeline that has reduced by half since January 2024.  

Midwest Regional Highlights

Detroit still posted the highest vacancy rate in the region, at 23.8%, and ranked among the top 10 markets with highest vacancies. In contrast, the Twin Cities had the lowest vacancy rate among the top 25 markets in January, at only 15%. 

The Twin Cities also saw the highest sales prices in the region at $93 per square foot as of December 2024, still significantly lower than the national average. In terms of office construction, the market had one of the smallest pipelines among the nation’s top 25 office markets, with 426,000 square feet in development, slightly down from the 490,000 registered a year prior. 

Southern Markets

Austin and Miami Top the Nation in Sale Prices 

The South remained home to some of the most expensive office markets for investment throughout 2024, with Austin and Miami leading the nation in sale prices at $396 and $365 per square foot, respectively. Charlotte ($231 per square foot), Orlando ($207), and Washington, D.C. ($202), also posted sale prices well above the national average of $174 per square foot. Washington, D.C., wrapped 2024 with the second-largest sales volume in the nation, totaling $3.9 billion.  

Miami and Austin were also the priciest markets in the region in terms of asking rents, correlating with their strong sales performance. Miami was on top with asking rents averaging $56.91 per square foot in January, while Austin followed at $45.77 per square foot. Nashville and Houston saw some of the highest year-over-year increases in asking rents, with Nashville’s rising 3.5% to $31.36 per square foot and Houston posting a 2.3% increase to $30.14 per square foot.  

South Regional Highlights

Austin led the nation in office construction on a percentage-of-stock basis, with current underway office projects comprising 3.7% of its existing stock. The market also ranked second nationally in square footage under construction, after Boston, with 3.6 million square feet in progress. Conversely, Washington, D.C., experienced a sharp decline in its pipeline, with only 995,000 square feet underway in January, down significantly from 3.5 million square feet in January 2024. 

Austin continued to record the highest office vacancy rate in the South and the second-highest nationwide at 27.8% in January. This marked a significant 580-basis point-increase year-over-year, highlighting the market’s continuous struggles. Dallas-Fort Worth and Houston followed with the second- and third-highest vacancy rates in the South, at 24% and 22.8%, respectively. 

Northeastern Markets

Manhattan Remains Among the Most Expensive Office Markets for Investment 

Despite rising vacancies across most of the top office markets, Northeastern markets have kept their rates below the 19.7% national rate. However, Philadelphia and Boston saw significant vacancy increase across the past 12 months. Philadelphia recorded the highest office vacancy rate in the Northeast at 19.6%, up by 570-basis points year-over-year, while Boston saw vacancy rates climbing by 490 basis points from the previous year to 17.4%. Conversely, New Jersey’s office vacancy rate showed a slight improvement from 19.7% a year prior to 19.2% in January, highlighting a potential stabilization of the office sector in the area.  

Northeast Regional Highlights 

Manhattan remained the most expensive office market for investment in the Northeast and the third most expensive among the nation’s top 25 markets, with office properties trading at $364 per square foot at the end of 2024. The market also recorded the largest year-to-date sales volume totaling $4.9 billion in December. Boston continued to be a premium office market as well, with properties here selling for an average of $259 per square foot and logging a total sales volume of $2.5 billion through 2024.  

Boston also maintained the largest office construction pipeline among the top 25 U.S. office markets, with 7.3 million square feet of office space underway, representing 2.8% of its total stock. However, this marked a significant decline from the 14.5 million square feet under development a year prior, signaling a slowdown in new office projects. Philadelphia and New Jersey had over 1 million square feet of office space in development at the beginning of 2025, though both markets saw a year-over-year decline. Notably, Philadelphia's pipeline shrank by more than half, from nearly 3 million square feet in early 2024 to 1.5 million a year later, reflecting broader market challenges and dwindling demand for new office space. 

Office-Using Employment  

Professional and Business Services Leading Office Job Loss 

Office-using sectors of the labor market lost 2,000 jobs during the month of January, according to the Bureau of Labor Statistics. Most of this loss was seen in the Professional and Business Services sector, which lost 11,000 jobs. The Financial Activities sector saw a positive change, with 7,000 jobs added, while the Information sector increased by another 2,000 jobs.  

Office Using Employment 

Office employment shrunk 0.1% year-over-year to 34.7 million, a 35,000-job loss. Most of this loss took place in the Professional and Business Services sector, with 69,000 jobs removed. The Information sector lost another 21,000, while the Financial Services sector was the only office sector to grow during the same period, with 55,000 jobs gained.  

Metro data, which trails the national release, shows office employment falling in half of the major markets. The Twin Cities led this downward movement, declining 4% with 19,000 jobs lost year-over year, 14,000 of which were in the Professional and Business Services sector. 

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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.  

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.  

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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