- The average U.S. office listing rate stood at $37.77 per square foot, down 40 basis points year-over-year
- Up 150 basis points over year-ago figures, the national vacancy rate reached 17.8% at the end of October
- There were 98.7 million square feet of office space under construction, accounting for 1.5% of existing stock
- Office sales totaled $27.9 billion through the first 10 months of the year, with assets trading at $196 per square foot
- Los Angeles led the nation in sales volume, totaling $1.86 billion through October
- At $27.78 per square foot, Chicago asking rents were $9.93 lower than the national average
- Dallas-Fort Worth logs second-largest sales volume in the U.S., closing $1.78 billion
- Manhattan recorded the highest average sale price at $580 per square foot
As we embark on the last quarter of the year, the outlook for the office market remains uncertain. With continued difficulties in obtaining financing, declining values, rising vacancy rates and the high volume of maturing loans, office landlords will face several hurdles in the foreseeable future, our latest U.S. office market report reveals.
As a result of lingering challenges, new development also continued to slow, with several office projects canceled or paused in 2023. Additionally, with so many difficulties on the horizon, office-to-residential conversions remain a popular option in major and smaller markets.
All eyes are on maturing loans and what happens with these buildings. We anticipate this being the beginning of functionally obsolete office buildings’ removal from the marketplace.Peter Kolaczynski, Director, Commercial
In Manhattan, the famed Flatiron building, vacant since before the pandemic, will be converted into 40 luxury condos. In Charlotte, Duke Energy sold an 800,000-square-foot tower to MRP Realty, which will convert the tower into 450 apartments. In Milwaukee, developers purchased the struggling 100 East, a 35-story tower downtown, with plans to convert it into 350 apartments.
Listing Rates and Vacancy: Office Asking Rates Trend Downward Across Leading Markets
The national average full-service equivalent listing rate in October was $37.77, our lates office market report shows, a decrease of 0.4% over the year and down one cent over the previous month.
The U.S. vacancy rate was 17.8%, an increase of 150 basis points year-over-year.
Top Listings by Metro Area: October 2023
Despite an influx of both people and corporations in recent years, Charlotte’s office market has struggled like many others. Over the last 12 months, the full-service equivalent listing rate has fallen 6.7% while the market’s vacancy rate has increased 320 basis points. Even the market’s standing as a financial center can’t mitigate the damage. Wells Fargo is set to leave the eponymous One Wells Fargo and Two Wells Fargo buildings and consolidate its footprint into the aptly named Three Wells Fargo. One, Wells Fargo went into receivership last month as it struggled to fill the tower following the financial firm’s exit.
Supply: Office Projects Canceled or Paused in 2023
Nationally, 98.7 million square feet of space were under construction as of October, representing 1.5% of stock, our U.S. office market report shows.
Office demand has continued its sharp decline in 2023, and as a result, new development has slowed. Almost 31 million square feet of new office space started construction in 2023, putting the year on track to end with slightly more than half of the number of starts seen in each of the two previous years.
Office Space Under Construction (Million Sq. Ft.)
Office projects are now being delayed or canceled, with the Bay Area seeing the most recent halting of development. Google and Lendlease agreed to cancel the $15 billion development of four master-planned districts in Mountain View. Vornado paused plans to build additional office towers around Penn Station, and New York Governor Cathy Hochul announced the train station’s rebuild would be decoupled from the plan to build those buildings.
Transactions: National Sales Volume Below $30 Billion Year-to-Date
CommercialEdge recorded $27.9 billion in office sales through the end of October, with properties trading at an average of $196 per square foot.
Investment in office has fallen in 2023, but the appetite for lab space remains. In Boston, the nation’s life science capital, much of the sales volume this year has been lab space.
2023 Year-to-Date Sales (Millions)
The market’s biggest purchase this year was CS Capital Management’s acquisition of the CenterPoint life science campus in Waltham, Mass., for $578 million, an average of $1,000 per square foot for the three buildings.
Western Markets: Asking Rents Trend Down in Leading California Markets
San Francisco continued to lead the West in asking rents, posting an average rate of $63.08 per square foot in October, down 5.5% year-over-year. At the same time, the vacancy rate increased by 3.1% over year-ago figures, with 22.6% of office space available for lease at the end of October — also the highest rate in the region.
Following closely, the Bay Area recorded rent rates of $54.01 per square foot during the same period, experiencing a 2.9% decline year-over-year. The office vacancy rate in the Bay Area remained in the high teens, reaching 18.9%, up 2.9% compared to the previous year. Asking rents followed similar trends in San Diego, where prices fell 3.3% year-over-year to $42.47 per square foot. Simultaneously, vacancy rates in the area increased by 3.6% year-over-year, reaching 18.2%.
West Regional Highlights
Beyond California, Seattle stood out with the highest listing rates at $37.54 per square foot. Notably, Seattle was among the few leading office markets in the U.S. that experienced an increase in asking rents, with a rise of 1% year-over-year. Nonetheless, Seattle registered the third-highest office vacancy rate in the West at 21.8%, slightly below Denver’s 21.9% rate.
In terms of sales volume, Los Angeles remained the most sought-after office market in the U.S., with investors closing a total of $1.86 billion in deals at an average price of $274 per square foot year-to-date through October.
The Bay Area followed among Western markets with a sales volume of $1.01 billion, with properties trading at $343 per square foot. Phoenix recorded the next-largest transaction volume, logging $923 million at $205 per square foot. On the other end of the spectrum, Portland and Seattle recorded the smallest sales volumes, with just $182 million and $188 million in closed office deals so far in 2023.
Midwestern Markets: Chicago Posts Lowest Sales Price of the 25 Top Office Markets
The major office markets in the Midwest have yet to show significant improvement as we entered the fourth quarter of the year, with key fundamentals largely remaining unchanged. In October, asking rents in Chicago stood at $27.84 per square foot, $9.93 below the national rate.
Meanwhile, Detroit closed October at $21.50 per square foot, while Minneapolis-St. Paul saw slightly higher rates at $26.71 per square foot. These rates, along with Phoenix's $27.76, Dallas-Fort Worth's $27.47 and Orlando's $23.65 per square foot remained among the six lowest in the country.
Midwest Regional Highlights
Nonetheless, Chicago stood out with the largest sales volume in the Midwest year-to-date through October, closing $858 million in office deals at an average price of $95 per square foot — the lowest price per square foot among the nation’s top 25 markets surveyed by CommercialEdge.
The Twin Cities followed, with a total of $556 million in transactions, closed at an average of $215 per square foot, above the $196 per square foot national average. Sales activity also remained slow in Detroit, where closed office deals amounted to $283 million through the year’s first ten months. Office properties in the Motor City traded at an average of $135 per square foot.
Amid the national slowdown in office development, leading markets in the Midwest had some of the lowest supply pipelines nationwide. Chicago had 1.4 million square feet underway, equal to 0.5% of existing stock. At the same time, the Twin Cities and Detroit had 537,444 square feet and 524,000 square feet in the pipeline, accounting for just 0.4% of their respective inventories. Only Phoenix had a lower supply pipeline on a percentage-of-stock basis, with 0.3% of its existing stock under development.
Southern Markets: Dallas-Fort Worth Logs Second-Largest Sales Volume Nationwide, Overtaking Manhattan
In the South, similar to trends in the western region, several markets experienced significant drops in asking rents. Miami, for instance, saw an 8% year-over-year decrease to $44.83 per square foot, while Charlotte experienced a 6.7% decline to $31.79 per square foot.
Washington, D.C., also saw a 1.8% decrease, reaching $40.63 per square foot. Among the priciest metros, Austin stood out as an outlier, with asking rents increasing by 0.3% year-over-year to $41.88 per square foot. Nonetheless, Austin had the second-lowest office occupancy rate in the South, with 20.5% of its space available for lease. Only Houston had a higher office vacancy rate, resting at 25% at the end of October.
South Regional Highlights
On a percentage-of-stock basis, Austin also remained the top metro for office development in October, with 6.2% of its existing stock underway, encompassing 5.7 million square feet. However, development is slowing down as projects are canceled. For instance, Related Companies announced that a proposed office tower along the Lady Bird Lake shore in Austin would now be developed for housing instead.
Regarding sales activity, Dallas-Fort Worth recorded the second-largest sales volume among the nation's leading markets, with $1.78 billion in closed deals, surpassing Manhattan’s $1.71 billion sales volume.
In the South, Washington, D.C., saw the next largest sales volume, logging $1.42 billion in transactions so far this year. Houston had the third-largest volume, with closed deals totaling $1.17 billion. The highest sale prices, however, were recorded in Austin ($413 per square foot), Miami ($365 per square foot) and Nashville ($248 per square foot).
Northeastern Markets: Boston Office Pipeline Still High Amid National Slowdown in Development
Among the 25 largest office markets in the U.S., Manhattan remained on the top for office asking rates at $70.71 per square foot, despite experiencing a 5.4% decline in prices year-over-year. Boston was the next-priciest market in the Northeast, with listing rates at $45.61 per square foot at the end of October, above the national average of $37.77 per square foot. In contrast, New Jersey and Philadelphia registered rates below the national figure, coming in at $34.60 per square foot and $31.77 per square foot, respectively.
Northeast Regional Highlights
Manhattan also performed well when it comes to sales, closing $1.71 billion in office transactions at an average price of $580 per square foot — the highest sale price across the leading office markets in the U.S. Boston and New Jersey also recorded sales north of $1 billion, closing $1.48 billion and $1.18 billion, respectively. However, while office properties in Boston traded at an average of $313 per square foot, in New Jersey, assets changed hands at nearly half that price at $150 per square foot. Finally, Philadelphia had a more modest sales volume, closing $472 million year-to-date at an average of $146 per square foot.
As of October, Boston had 13.7 million square feet of office space under development, accounting for 5.5% of its existing stock. Considering planned projects as well, the market is looking to expand its office footprint by 10.8%. Nevertheless, due to uncertainty surrounding the future of offices, securing financing is challenging, creating volatility in the outlook for office projects.
Office-Using Employment: San Francisco Employment Slips
Office-using sectors of the labor market added 4,000 jobs in the month of October, according to the Bureau of Labor Statistics (BLS), increasing 0.6% year-over-year. The Professional and Business Services sector added 15,000 jobs in the month, while Information lost 9,000 and Financial Activities lost 2,000.
Office Using Employment
Metro-level data, which trails the national release, shows more than a third of the markets covered by CommercialEdge. San Francisco has decreased 0.4% year-over-year, with tech layoffs driving most of the losses. Google, Meta, Salesforce, Cisco, Uber and Twitter all laid off thousands of workers in the last year, with many of those jobs concentrated in San Francisco and the nearby Bay Area. While reporting suggests that artificial intelligence is breathing life back into San Francisco’s beleaguered office market, employment gains have yet to show up in numbers from the BLS. In September, the Information sector had its lowest levels of employment so far this year.
Trends & Industry News: Conversions Continue to Face Uphill Battle
The potential for vacant office stock to become new housing has been a hot topic since the early days of the pandemic when it first became clear that the relationship between the office and the worker would be forever altered. While conversions are now occurring in nearly every market, there is still a long way to go before they make a significant impact in the broader office and housing markets.
Many of the problems that have so far forestalled conversions remain prevalent. The large floor plates and high ceilings in office towers present logistical challenges. The submarkets with the highest office vacancies are typically in CBDs, which lack access to necessities like grocery stores. Even a building perfectly suited for conversion requires significant capital, meaning that interest rate increases, and tight capital markets further limit the pool of opportunities. For office-to-residential conversions to truly thrive, public support will be necessary. The public sector can provide financing and incentives to help projects pencil out and also work with developers to smooth out issues like zoning and landmark preservation, a challenge for some older properties such as the Flatiron Building.
The White House made headlines recently by announcing a plan to help spur office conversions. While it is encouraging to see the highest levels of the federal government acknowledge the hurdles these projects face, the plan still comes up short of offering game-changing support from the public sector. The plan makes financing and other assistance available through a variety of sources — 20 different programs across six agencies — but comes with no net new funding. There is potential for some programs to make a significant impact, like those offered by the Department of Transportation that are focused on transit-oriented development, but for now, it is unclear how much impact the plan will have. CommercialEdge will monitor the effect the plan has on conversions going forward.
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.
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