Despite Return-to-Office Mandates, Downsizing and Vacancy Upticks Persist 

Key takeaways: 

• Despite recent return-to-office mandates from major companies, office utilization remained unchanged, and vacancy rates continued to rise, with the national rate at 19.5%, up 170 basis points year-over-year 
• Under-construction office space totaled 68.5 million square feet nationwide, of which only 9.3 million square feet broke ground this year 
• Office sales totaled $23.8 billion through September, with assets trading at an average of $171 per square foot 
• San Francisco remained the most expensive market in the West, with asking rents averaging $67.32 per square foot, nearly matching national leader Manhattan’s $67.93 per square foot 
• Chicago’s office construction pipeline shrank to 827,906 square feet as of September, a quarter of the 3.4 million square feet under development a year ago
• Manhattan saw improvement in office occupancy, with its vacancy rate decreasing by 90 basis points year-over-year to 16.8% 

Trends & Industry News

Return-to-Office Mostly Unchanged in 2024

While employer-mandated return-to-office policies at well-known companies have garnered plenty of headlines, office utilization data remains mostly unchanged. Due to remote and hybrid work, downsized office footprints still appear to be the norm in the office sector, according to our most recent U.S. office market report.

Many companies have tried to entice workers back to the office with amenities and other incentives, but for the most part, these efforts have fallen short. Having grown tired of the carrot approach, some companies have instead decided to embrace the stick. Amazon CEO Andy Jassy announced in a memo that the company expects its workers to return to the office five days a week starting in January. Earlier this year, Dell announced that remote workers would no longer be considered for promotions. Meta informed its employees this summer that attendance will be tracked daily and failure to be in the office at least three days a week could lead to termination. 

While strict mandates from high-profile firms have received news coverage, vacancy rates and office utilization have yet to show significant change. Kisi Access Control, which uses aggregated unlocks to analyze office occupancy, reported a national average occupancy of 50.2% for the week ending on September 30^th. Kisi provides data for Washington, D.C., and the six most populous states.  

Illinois (56.1%), Texas (54.7%) and Florida (53.2%) all had office occupancy rates above the national average, while California (49.2%), Pennsylvania (47.8%), New York (47.2%) and Washington, D.C. (36.6%) fell below. Kastle’s Back to Work Barometer, which also tracks badge swipes, showed similar results, with its most recent office utilization reading at 51.4%, roughly where it has been throughout the year. 

Firms may want to push for a return to the office, but remote and hybrid work remains widespread. In a recent survey of 1,300 CEOs by KMPG, 83% said they expect to move back to five days in the office within the next three years, up from 64% in last year’s survey. However, leasing data and office badge swipe statistics mentioned earlier continue to paint a different picture. CBRE reported that while the total number of leases signed in the first half of 2024 was roughly in line with pre-pandemic levels, the average lease size has declined by more than a quarter. At the same time, new job formation has stagnated, keeping office demand depressed. According to the Bureau of Labor Statistics, office-using sectors of the labor market have grown just 0.4% year-over-year. 

As office physical occupancy data remains stubbornly low, it continues to magnify the problem that we have too much office space. Roughly 20% of the 7 billion square feet remains empty.

Peter Kolaczynski, Director, CommercialEdge 

Listing Rates and Vacancy

Distressed Demand and Rising Vacancies Continue

The national average full-service equivalent listing rate was $32.89 per square foot in September, our latest U.S. office market report shows, up 11 cents from the previous month.

The national vacancy rate was 19.5%, increasing 170 basis points year-over-year. As pre-pandemic leases expire, many companies are downsizing their physical footprints, leading to spikes in U.S. office vacancy rates and distress in the office sector. The most notable year-over-year increases in vacancy rates were seen in Austin (660 basis points), Boston (610 basis points), the Bay Area (540 basis points) and Denver (400 basis points).  

Top Listings by Metro Area: September 2024 

Another market hit by decreased demand for office space was Atlanta. The vacancy rate in the market has increased by 180 basis points in the last year, currently at 20.5%, one of the highest among Southern markets. However, not every company in the market is downsizing. Newell Brands, a Fortune 500 consumer brands firm, recently signed a 180,000-square-foot lease to move its global headquarters to Concourse Office Park in Sandy Springs. Newell is relocating from a smaller space a couple of miles away at 6655 Peachtree Dunwoody Road, a building it owns. 

Supply

Tech Market Pipelines See Drastic Reversal

Nationally, 68.5 million square feet of office space were under construction, representing 1.0% of stock, according to our U.S. office market report. 

The total size of the under-construction pipeline has shrunk by nearly a third through the first three quarters of this year. While 37.5 million square feet of space has been delivered in 2024, only 9.3 million square feet have broken ground so far this year. 

Office Space Under Construction (Million Sq. Ft.) 

Two tech markets have seen the most dramatic shifts in development pipelines. Austin and Seattle both maintained steady development momentum during the first two years of the pandemic. However, in 2023, new development activity in these markets nearly came to a halt as layoffs hit the tech sector, capital costs increased, and remote and hybrid work became firmly entrenched.  

Between 2019 and 2022, 13.8 million square feet of office space started construction in Austin, averaging 3.5 million square feet annually. Since the start of 2023, only 1.4 million square feet have broken ground in the market. Seattle saw an average of 2.6 million square feet of starts per year between 2019 and 2022 but only 696,000 square feet in total over the past seven quarters. 

Transactions

Average Sale Prices Tumble in Key Markets

Across the U.S., a total of $23.8 billion in office sales have been recorded through the end of September, with properties trading at an average of $171 per square foot, our most recent U.S. office report notes. 

Amid distressed demand for office space, transactions have maintained a steady pace in markets like Manhattan ($2.7 billion in office sales), Washington, D.C. ($2 billion), the Bay Area ($1.8 billion) and Dallas-Fort Worth ($1.1 billion). Other markets nearing the $1 billion mark are Los Angeles ($985 million), Phoenix ($969 million) and Boston ($957 million). 

2024 Year-to-Date Sales (Million) 

However, office properties continue to sell at lower prices compared to the pre-pandemic period. Since 2020, the average sale price of office space in Chicago has dropped by more than half, falling from $217 per square foot to $98 per square foot. Earlier this year, Beacon Capital Partners acquired 333 West Wacker Drive in the CBD for $125 million. While this was the largest sale in the market in two years, the building traded at a steep discount compared to the $320 million it changed hands for in 2015. 

Western Markets

Asking Rents in San Francisco Nearly Match Manhattan’s

U.S. office vacancy rates across Western tech markets remained in the high teens, with San Francisco leading at 27.6%, an increase of 350 basis points year-over-year. Seattle followed closely with 26.2% vacant office space, up 390 basis points compared to the previous year, while the Bay Area recorded a 25.3% vacancy rate, rising by 540 basis points year-over-year. In contrast, Los Angeles was the tightest office market in the West and the third nationally, with 16.3% available office space as of September.  

San Francisco continued to lead the West in asking rents, posting an average rate of $67.32 per square foot. The gap between Manhattan and San Francisco’s asking rents has narrowed significantly, with San Francisco almost matching Manhattan’s $67.93 per square foot. Western markets remained some of the most expensive office markets in the U.S., with only Denver ($30.79 per square foot), Phoenix ($28.17) and Portland ($27.00) recording asking rents below the national average.   

West Regional Highlights  

Seattle has experienced one of the most significant slowdowns in office construction among Western markets. One year ago, the market led the region and ranked second nationally in office development, with 6.9 million square feet in the pipeline. As of September, only 2.1 million square feet were underway, with no new projects breaking ground so far this year. Conversely, Los Angeles defies the general trend, maintaining a steady pace of office construction with 2.5 million square feet in the pipeline — nearly identical to its year-ago levels. This stability is primarily driven by continued demand for creative office spaces, particularly those tied to the entertainment industry.  

Another major market to see a significant decline in office construction is the Bay Area, with 2.4 million square feet underway, representing nearly half of the 4 million square feet under development a year ago. Amid high interest rates, rising construction costs and weak office demand, few projects have broken ground in the Bay Area since 2021. One is the high-end, Class-A development at 388 Cambridge Ave. in Palo Alto, expected to command a premium price for future tenants.  

Despite the slowdown in development, the Bay Area remained the most sought-after office market in the West for investors, recording $1.8 billion in transactions through September. Properties here traded at an average of $278 per square foot, second regionally only to Los Angeles’ $345 per square foot. However, Los Angeles lost its position as the national leader in office sale prices to Austin, where prices averaged $379 per square foot.  

Midwestern Markets 

Chicago’s Pipeline Shrinks to a Quarter of Last Year’s Volume

Midwestern markets continued to be among the most affordable across leading U.S. office markets. Detroit recorded the lowest asking rates nationally at $21.63 per square foot, followed by the Twin Cities at $26.47 per square foot. While Chicago's rates were closer to the national average with $27.04 per square foot, the market experienced a 1.9% year-over-year decline in asking rates.   

Regarding office space availability, Minneapolis-St. Paul was the tightest market in the Midwest, with a 16.8% vacancy rate. Chicago followed with a 19% vacancy, slightly below the national average.   

Midwest Regional Highlights  

Office construction continued the downward trend in the Midwest, with Chicago experiencing the most significant drop, from 3.4 million square feet in progress a year ago to just 827,906 square feet as of September. Chicago also had the smallest supply pipeline nationally on a percentage-of-stock basis, alongside Phoenix, with office projects accounting for only 0.3% of existing stock in both markets.  

In terms of sales volume, however, Chicago led the region, closing $667 million in office deals at an average of $98 per square foot — the second-lowest average sale price nationally, along with Detroit. Office buildings in Chicago continued to sell at steep discounts, such as the 10-story property at 29 N. Wacker Driver, which sold for 63% less than its last sale price. The 133,600-square-foot building was purchased by investor Sanjay Gandhi for slightly over $11 million, a significant decline compared to its January 2022 sale price of $29.7 million.   

Southern Markets

Austin Leads the Nation in Sale Prices 

Austin, the regional leader in office development on a percentage-of-stock basis earlier this year, has been overtaken by Miami. As of September, Austin had 3.4 million square feet under construction, representing 3.6% of its total stock, while Miami’s 2.8 million-square-foot pipeline accounted for 3.9% of existing stock. Office construction in Austin has significantly slowed compared to a year ago when 6 million square feet were underway.   

Amid the slowdown in development, Austin remained among investors’ favorite markets, with $787 million in office transactions in the first nine months of the year. Properties traded at an average of $379 per square foot, the highest sale price among leading U.S. markets, overtaking last month’s leader, Los Angeles, now at $345 per square foot.    

As mentioned above, construction activity in Miami remains robust, with its pipeline increasing from 2.4 million square feet to 2.8 million square feet year-over-year. Considering planned projects as well, the market might expand its inventory by 10.9%. One notable development expected to break ground in Miami by year-end is The Doris, an eight-story office building in Wynwood Arts District. The project is set to feature 27,000 square feet of office space and 1,800 square feet of retail, with an estimated completion time of 16 months.  

South Regional Highlights  

Despite a shrinking pipeline and increased sales activity, Austin saw a climb in vacant office space. The city’s vacancy rate surged by 660 basis points year-over-year, the highest increase among top U.S. office markets. Regionally, it was followed by Dallas-Fort Worth, with a 390-basis point rise, reaching 22.9%.  

Washington, D.C., the regional leader in sales volume, exceeded $2 billion in office deals. Properties in the market traded at $230 per square foot, the third-highest price in the South. However, the capital is no stranger to reduced-price sales. A recent example is the acquisition of the Portrait Building at 701 Eighth St. NW by Douglas Development for $34.3 million. The 135,000-square-foot, eight-story property previously changed hands in 2012 for $98.5 million.  

In terms of asking rates, markets like Austin ($45.99 per square foot), Washington, D.C. ($41.48), Charlotte ($33.81) and Atlanta ($33.63) all posted asking rates above the national average. Meanwhile, Orlando recorded one of the lowest average asking rates nationally at $27.57 per square foot.  

Northeastern Markets

Manhattan Sees Improvement in Office Occupancy 

Manhattan remained the most expensive office market in the U.S., with asking rates averaging $67.93 per square foot. It remained investors’ top choice among all U.S. office markets, with investors closing nearly $2.7 billion in office transactions through September. However, average sale prices have decreased by $51 month-over-month to $335 per square foot by the end of September.   

Once the nation’s leader in office sale prices, Manhattan has now dropped to fourth place, surpassed by Austin ($379 per square foot), Los Angeles ($345) and Miami ($335). Properties continued to sell at discounted prices, such as the $65 million sale of a Midtown East office building, which was equal to a third of its $180 million price in 2019. Savanna sold the 270,000-square-foot property at 360 Lexington Avenue to Capstone Equities and AmTrust RE.

Office construction in Manhattan has also slowed, with its pipeline shrinking from 6.5 million square feet a year ago to just 2.6 million square feet underway. However, bucking the overall trend, Manhattan's office occupancy is improving, with the vacancy rate dropping 90 basis points year-over-year to 16.8% as of September.  

Northeast Regional Highlights  

New Jersey recorded the highest vacancy rate across Northeastern markets at 20.2%, a 260-basis points surge year-over-year. Philadelphia followed with 17.8% vacancy, up 380 basis points from a year ago.     

Boston continued to lead the U.S. in office development, with 11.6 million square feet under construction, representing 4.6% of its total stock. However, increased supply deliveries, coupled with declining demand for life science spaces, pushed Boston’s vacancy rate up by 610 basis points year-over-year — the second-highest increase nationally, after the Bay Area — reaching 16.4%.   

Despite rising vacancies, Boston has performed well in office transactions, recording $957 in deals through September at an average price of $228 per square foot. A vacant waterfront office property at 400 Atlantic Ave. recently sold for $30M to UBS, $20 million less than its purchase price in 2014. The 100,000-square-foot building was acquired by a European investment firm, an affiliate of Luxembourg-based JAJ Investment Group. 

Office-Using Employment  

Twin Cities’ Prolonged Contraction

Office-using sectors of the economy added 26,000 jobs in September, according to the Bureau of Labor Statistics. Professional and Business Services added 17,000 jobs in September, Financial Activities added 5,000, and the Information sector grew by 4,000 jobs. This marked the first time since March that all three sectors saw growth in the same month. Over the past year, office-using sectors have added 149,000 jobs, growing just 0.4%.  

Office Using Employment 

Metro-level data, which trails the national release, shows that the slowdown in office-using job growth remained widespread in August. However, some markets, such as the Twin Cities, struggle more than others.

The Twin Cities have lost nearly 23,000 office jobs over the past twelve months, a decrease of 4.7%. This recent drop is particularly concerning given the market’s weak recovery from the 2020 downturn. The Twin Cities is the only major market covered in our report, with fewer office-using employment now than at the start of the decade. 

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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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