06Jun_CEdge_Office Report_Blog_1400x598

Exposure to Remote Work Puts Uneven Strain on Tech Markets

Key Takeaways: 

  • The average U.S. office listing rate stood at $38.36 per square foot, rising 2.1% year-over-year 
  • Up 30 basis points year-over-year, the national vacancy rate was 17%   
  • Under-construction office space reached 116.2 million square feet nationwide, accounting for 1.8% of total stock  
  • Office sales amounted to $11.9 billion in May, with assets trading at $195 per square foot  
  • Los Angeles sale prices fell 43% compared to last year, to $237 per square foot  
  • Chicago claimed the sixth-highest sales volume nationwide, with $588 million in closed deals 
  • With properties trading at $356 per square foot, Austin recorded the highest average sale price in the South 
  • New Jersey boasted the second-largest sales volume in the North, totaling $827 million  

Remote and hybrid work have forever changed the relationship many companies and workers have with the office. Still, the number of remote workers varies widely from city to city, leaving some office markets more vulnerable than others, our latest U.S. office market report reveals. 

The markets with the largest share of remote work have also seen the highest spike in vacancies. For example, the Denver metro, which includes both the Boulder and Denver-Aurora-Lakewood markets (27.5% of workers working remotely, according to Census data from the American Community Survey), has seen vacancy rates increase by 3% over the last 12 months. Additionally, vacancy rates in Austin have increased by 4.4%, 2.8% in San Francisco and 2.3% in the Bay Area.  

Other markets where a large share of remote workers is correlated with vacancy rate increases are Seattle (30.6% remote workers— 3.8% increase), Portland (27.5% — 3.7%) and the Twin Cities (26.0% — 4.5%). 

Six months ago, we pointed to watching how lenders behaved in conjunction with borrowers. Could they work together for an extension? Now it’s reasonable to question if borrowers will be motivated to work with lenders on a solution. We’re expecting to see more buildings surrendered.

Peter Kolaczynski, CommercialEdge Senior Manager

We anticipate that there will be more distress for office properties in markets with the highest concentration of remote workers. Nonetheless, as the U.S. office real estate outlook indicates, well-positioned assets in these markets will continue to perform well, but older and poorly located properties will face more challenges. 

Listing Rates and Vacancy: Tech Markets Continue to See Lower Office Occupancy Rates 

The national average full-service equivalent listing rate was $38.36 in May, according to our U.S. office market report, an increase of 2.1% year-over-year and 13 cents over the previous month. The rates for A and A+ office spaces have increased by 1.7% from last year, currently standing at $46.93 per square foot. Class B office rates have inched up by 0.3% to $30.38 per square foot, and Class C spaces also saw a slight increase of 0.7% to $23.37 year-over-year in May.  

Top Listings by Metro Area: May 2023 

Suburban assets have experienced the highest rent increase, rising by 3.8% year-over-year to $30.93 per square foot. Meanwhile, CBD offices saw a year-over-year uptick of 2.5% to $51.16 per square foot, whereas urban office space decreased by 2.8% year-over-year to $44.09 per square foot. 

The national office vacancy rate in May was 17%, up 30 basis points over the previous month and 160 basis points over the prior year. U.S. office vacancy rates have climbed more rapidly in tech markets in recent months, with some of the highest rates recorded in Austin (20.67%), Denver (20.24%), San Francisco (20.05%) and Seattle (19.53%). 

Supply: New Markets Look to Add Life Science Developments

Nationally, 116.2 million square feet of new office inventory were under construction at the end of May, representing 1.8% of existing stock. 

While many office projects have been canceled or placed on indefinite hold, life science properties have remained attractive to investors, according to our U.S. office market report. Even as investment in the industry has cooled in the last year, demand for new lab space has stayed solid, as the property type is immune to remote work and, for the most part, is purpose-built.  

Office Space Under Construction (Million Sq. Ft.) 

More than 120 buildings with at least some life science components are being built nationwide. Much of the new lab space currently under construction is in the top life science markets in the country such as Boston, San Francisco, the Bay Area and San Diego.  

However, other markets are building properties to attract life science workers and companies. In New Jersey, HELIX Health + Life Science Exchange, a planned 4-acre mixed-use district near Rutgers University, is entering its second phase of a $731 million development. In a partnership with Trammel Crow, Georgia Tech is building the 365,000-square-foot Science Square Labs in Atlanta to fuel the market's growth. 

Transactions: National Average Sale Price Falls 22% from 2022 to 2023

The U.S. office market has seen $11.9 billion in transactions through the end of May. The national average sale price of an office building has fallen from $250 per square foot in 2022 to $195 in 2023, a decrease of 22%.  

2023 Year-to-Date Sales (Millions) 

The recent sale of Union Bank Plaza in Los Angeles highlights the significant drop in sale prices. In 2010, KBS Realty Advisors bought the building for $208 million, but this year, they sold it to Westbridge Capital for only $104 million. At the same time, a 13-story San Francisco office tower acquired by Wells Fargo for $108 million in 2005 is expected to trade for about $42.6 million. 

Western Markets: Los Angeles Sees Steepest Decline in Average Sale Price

The largest office markets in the West continued to experience a significant increase in vacancy rates due to the high concentration of tech firms and remote workers. In the Denver market, where 27.5% of workers are working remotely, the office vacancy rate stood at 20.24%, rising 3% year-over-year, the highest rate in the region and the third highest nationwide. 

As one of the hottest tech markets in recent years, Seattle also continued to see a substantial uptick in vacancy rates, rising 3.8% over the past 12 months to 19.53%. Moreover, with Salesforce listing 200,000 square feet of the Tableau offices for lease, the Emerald City recorded a sublease vacancy rate of 4.3%, the third highest among major markets. 

Overall, all leading Western markets saw increases in vacancy rates over the past 12 months. However, markets driven by the life sciences sector generally recorded higher occupancy rates. At the end of May, the Bay Area had 17.71% of its total office space available for lease; meanwhile, San Diego's vacancy rate stood at 15.36%, below the 17.05% national rate. 

The life sciences sector also kept asking rates higher in San Diego, with rents reaching $47.83 per square foot at the end of May. Nationally, the metro's lease rate was only outpaced by the Bay Area's asking rent of $54.02 per square foot, San Francisco's $65.98 per square foot and Manhattan's $73.57 per square foot. The lowest asking rents in the West were recorded in Phoenix ($27.53 per square foot), Portland ($28.63 per square foot) and Denver ($30.47 per square foot). 

On a percentage-of-stock basis, San Diego also led the region in development, with 4.9 million square feet of office space under construction, equal to 5.3% of its existing stock. Considering planned projects as well, the metro is looking to expand its inventory by 9.9%. San Francisco and Seattle followed closely, with the supply pipeline representing 5.2% and 5% of their respective inventories. At the other end of the spectrum stood Los Angeles, with projects under construction accounting for 0.5% of total stock.

West Regional Highlights 

Los Angeles has also seen one of the steepest falls in average sale prices across the nation, with the average sale price falling 43% to $237 per square foot from the $412 average price per square recorded last year. Yet, the metro recorded the largest sales volume in the West, with $1.01 billion in closed office deals year-to-date through May. On a national level, Los Angeles was only outpaced by Manhattan's $1.32 billion volume. 

In terms of sale prices, San Francisco, San Diego and the Bay Area led the West, with properties trading at $520 per square foot, $415 per square foot and $348 per square foot, respectively. 

Midwestern Markets: Chicago Claims Sixth Largest Sales Volume Nationwide 

Office markets in the Midwest continued to be the most affordable among the 25 largest U.S. office markets. In May, asking rents in Chicago stood at $27.40 per square foot, well below the $38.36 national rate. 

At the same time, Minneapolis – St. Paul ended the month at $27.05 per square foot. These rates were among the four lowest in the country, along with Orlando's $24.43 per square foot and Dallas – Fort Worth's $27.20 per square foot. 

Leasing activity remained slow in the Midwest, with Chicago's office vacancy rate at 18.77%, above the 17.05% national rate. And while the Twin Cities saw a lower vacancy rate (16.94%) and a higher office occupancy rate, the market's vacancy increased by 4.54% year-over-year, one of the highest growth rates among the 25 metros. 

Midwest Regional Highlights  

Minneapolis – St. Paul continued to have one of the lowest supply pipelines nationwide, with only 590,430 square feet of office space under construction, accounting for 0.5% of the market's stock. In terms of square footage, only Portland's 565,714-square-foot pipeline was smaller. On the other hand, Chicago had more than 3.5 million square feet of office space underway at the end of May, equal to 1.2% of its existing inventory. 

Sales activity picked up pace in Chicago in recent months. Year-to-date through May, investors traded $588 million, the sixth-largest sales volume nationwide. However, the average price stood at $109 per square foot, below the national average of $195 per square foot. At the same time, in the Twin Cities investors closed $187 million in office sales, with properties trading at $229 per square foot. 

Southern Markets: Austin Continues to Lead the U.S. in Office Development on a Percentage-of-Stock Basis 

When it comes to office sector trends in the South, Austin continued to remain one of the most puzzling markets. While the metro is leading the nation in the back-to-office movement, the Austin-Round Rock market also had one of the highest shares of remote workers according to Census data, reaching 32.2%. 

Vacancy rates in Austin have increased 4.4% year-over-year in May to 20.67%. Nationwide, only the Twin Cities and Phoenix experienced higher rate hikes; there, the vacancy rate rose 4.54% and 4.43%, respectively. Overall, Austin's vacancy rate was only outpaced by Houston's 23.2% rate both regionally and nationally. 

South Regional Highlights 

Regarding asking rates, Austin's average rate of $42.10 per square foot was exceeded only by Miami's $46.23 per square foot and was slightly above Washington, D.C.'s rate of $40.26 per square foot. The next priciest markets in the region were Charlotte and Houston, with asking rents of $30.78 per square foot and $30.50 per square foot, respectively, well below the $38.36 per square foot national average. 

Austin also remained the leader in development both in the South and nationwide. The Texas capital had more than 7.2 million square feet of office space underway, accounting for 8.1% of its existing inventory — the largest pipeline on a percentage-of-stock basis among the nation's top 25 U.S. office markets. At the other end of the spectrum stood Tampa with only 0.9% of its total stock underway, representing 671,154 square feet of office space. 

Office Space Under Construction & Planned (% of stock) 

In terms of sales volume, Washington, D.C. ($609 million), Houston ($536 million) and Tampa ($471 million) led the South. Washington, D.C., also had the third-highest average sale price at $248 per square foot, coming in after Miami's $262 per square foot and Austin's $356 per square foot. 

Northeastern Markets: Life Sciences Continues to Drive Development in Boston 

Manhattan remained the most expensive market for office rents in May, closing the month at $73.57 per square foot, well above the next two highest rates — San Francisco's $65.98 per square foot and the Bay Area's $54.02 per square foot. In contrast, among leading office markets in the North, Philadelphia recorded the lowest asking rents, with its average stabilizing at $31.11 per square foot. 

The office vacancy rate in the region hovered around the national average of 17.05%, with Brooklyn coming in at 17.07%, Manhattan at 17% and New Jersey at 16.95%. At the same time, Manhattan's average vacancy rate grew at the fastest pace in the region, rising 2.92% year-over-year. 

Northeast Regional Highlights 

Thanks to the booming life sciences sector, Boston's development pipeline remained generous. The metro had 15.2 million square feet of office space under construction, equal to 6.3% of its existing inventory — leading the region on a percentage-of-stock basis and in terms of square footage. On the other end stood New Jersey, with 0.8% of its total inventory underway, representing 1.6 million square feet of office space. 

Manhattan also claimed the largest sales volume nationwide, accounting for $1.13 billion of the $11.9 billion national total. New Jersey boasted the second-largest volume, totaling $827 million in office sales, while Boston amassed $756 million throughout the first five months of the year. 

Looking at sale prices, Manhattan also led the nation, with properties trading at $698 per square foot. Boston came in second in the region and third nationwide, with an average sale price of $475 per square foot. Meanwhile, in Philadelphia and New Jersey, properties sold at an average of $161 per square foot and $144 per square foot, respectively, below the $195 per square foot national average. 

Office-Using Employment: Office Jobs Decline in Denver

Office-using sectors of the labor market added 65,000 jobs in May and grew at a rate of 1.9% year-over-year, according to the Bureau of Labor Statistics. After outpacing the national labor market in job growth after the pandemic, office-using sectors have grown slower for six consecutive months.  

Office-Using Employment Growth by Sector  

The deceleration in office job growth has been widespread geographically. Even standout markets in Texas and Florida that grew more than 10% year-over-year last summer have slowed considerably. Other markets, like Chicago, Denver and Twin Cities, have turned negative.  

The Denver market has been hit by falling employment in both the Financial Activities and Information sectors. Metro-level data for April, which trails the national release, show a loss of more than 9,000 jobs in financial activities over the last 12 months, while the Information sector has lost nearly 3,000 workers over the same period. 

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

You can also see our previous office reports. 


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. 

Evelyn is a creative writer covering commercial real estate trends and insights in the U.S. Evelyn was previously a senior associate editor at Multi-Housing News and Commercial Property Executive. She has an academic background in Journalism and Irish Studies. Evelyn has been covering the CRE industry since 2017. Reach her via email.

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