Office Vacancies Increase as Pandemic Accelerates Move Away from Traditional Office Space
In 2020, the COVID-19 pandemic triggered a “new normal” for office-using employment, prompting a shift away from working in more traditional office spaces. And, while the roll-out of a vaccine seems like a promising solution, actually getting employees back into offices is more complex.
That’s because, as the U.S. economy took a hit from the pandemic, so did top-tier real-estate investment metro areas. In fact, according to our recent national office report (full report download link below), office-using employment nationwide fell 5.3% year-over-year by October. Specifically, gateway markets like New York, Los Angeles and Chicago registered job losses of 7.8%, 6.6% and 5.4%, respectively.
Similarly, in terms of nationwide office occupancy, our report also shows that, in November 2020, the national vacancy rate increased 40 basis points to 13.8%. Moreover, the national average full-service equivalent listing rate fell 11 cents month-over-month, resting at $38.00 per square foot in November.
However, despite fears that workforce changes brought on by the pandemic would reverse the decade-long densification and urbanization trend in the commercial office sector, the report also noted that signs of the rebirth of the suburban office were actually present prior to the pandemic. One such example is the Austin office market, where 77% of planned stock is in suburban submarkets — properties that were planned pre-pandemic. Notably, of the 120 markets that our report considered, Austin led the way in terms of the total amount of square footage under construction or in the planning stages. Plus, this Texas market also recorded a 4.3% Y-o-Y growth in office-using employment as of October, and the recent relocation of Tesla and Oracle to the city significantly add to Austin’s growing appeal for commercial developers.
Another U.S. office market that stood out in our recent study was Boston. In terms of sales, Boston office space saw the largest sales volume nationwide — $4.5 billion by the close of November. However, it’s worth noting that local office deals that closed at the start of the year contributed greatly to the market’s yearly sales total. Namely, the two largest Boston office transactions of 2020 — with a combined value of $1.4 billion — were already underway before the pandemic.
Meanwhile, activity in central urban office markets didn’t grind to a halt, either. One example is the Bay Area, where full-service equivalent listing rates increased 7.7% year-over-year in 2020. Additionally, San Diego stood out among cities with new developments in the urban core. Partly due to buildings currently under construction in downtown San Diego, average full-service equivalent listing rates here increased 5.2% year-over-year.
Use the prompt directly below to download the full report and access a comprehensive analysis of how the U.S. office market really fared in 2020, as well as insights on the recovery path ahead.