Request rates for office space remain stable as job vacancies rise in 50 office markets

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Photo: CommercialEdge

BOSTON. According to Commercial Edge’s report on the national office market, the average asking rent for an office in the United States increased 1.2% year-over-year, and vacancy rate among the top 50 office markets was 15.5% in July.

The report says that in 2021, sales of offices closed prior to July totaled nearly $ 37 billion, and more than 34 million square feet of new office space have been leased from the beginning of the year to date.

Here’s more from the report:

Quotes for office space in the United States rose by 1.2% y / y

After a 1.2% increase over the same period last year, the July office asking for rent averaged $ 38.60 per square foot in the 50 largest US office markets. Rental rates also remained unchanged on a monthly basis, up 2 cents from June. While the emergence of the COVID-19 delta variant is delaying some planned returns to the office, employers have responded quickly and a number of companies (including Alphabet and Walmart) have adjusted their return-to-work policies. So far, the rates have not changed due to these events.

In the individual market analysis, Los Angeles stands out for the highest annual increase in asking rent for offices, with office prices in Los Angeles rising 8.1% from July 2020, reaching $ 41.60 per square foot. Meanwhile, the Bay Area ($ 55.80 per square foot) and Tampa ($ 29.70) tied for the second-highest rent increase as office space rates in both markets rose 6.1%. Miami came in third on this list with a 5.8% y / y increase in listing rates, averaging $ 43.43 per square foot in July.

Vacancy Shows Signs of Cold Snap in Most Markets

In the top 50 US office markets, the average vacancy rate was 15.5% in July, up 190 basis points from the same period last year. However, the upward trend behind the pandemic is gradually declining as the number of vacancies decreased by 10 basis points from June. The slowdown in growth is also noticeable at the national level, as vacancy rates have declined in most of the markets we have reviewed so far.

Notably, the growth of the life sciences sector has played a decisive role in dropping job vacancies below average in some markets. Even before the pandemic, aging demographics and technological innovation have triggered a surge in demand for R&D facilities, diagnostic centers and healthcare facilities across the country, which understandably has been accelerated by the emergence of COVID-19. Consequently, the office markets, which are home to established biotech clusters, have attracted both new and growing tenants in the sector, as well as investors interested in capturing and anticipating growing demand. For example, among seven markets that had low double-digit job vacancies in July, Boston had 11.7% of vacancies and San Diego 14.2%. Both cities are among the leading centers of life science in the country.

Total U.S. office sales in 2021 will be $ 37 billion by August 1.

Office operations recorded during July this year totaled nearly $ 37 billion. While investment activity is still low compared to pre-pandemic levels, sales completed in 2021 could surpass the nearly $ 62 billion recorded last year. Overall, July sales were in line with the trend discussed in our previous report: Investors in commercial real estate are not shy of the market and continue to make deals with high-potential office assets.

Recent transactions show that physical offices will remain an integral part of the working world. For example, as a case in point, LinkedIn paid $ 323 million in July for its new headquarters in Sunnyvale, California, despite the company’s decision to allow employees to work remotely on a full-time basis.

Pipeline under construction reduced to almost 157 MSF

There were 157.2 million square feet of new office stock under construction as of July, down 4.5% from the start of the year. The pipeline under construction is currently being cut as projects that started before the pandemic continue to be completed and new projects are cut. The office market is adjusting to changing demand and construction has begun on 27.1 million square feet of supply this year.

In terms of office completion, over 34.4 million square feet of new warehouse space were commissioned in 2021. It is noteworthy that since a large proportion of these projects were started before the pandemic, the supply is likely to remain high in the near future. Thus, the impact of the pandemic on new office building will have a more significant impact in the next two years, when demand may become more stable.

Download the full August 2021 report below for updated rental rates statistics for all major US markets.

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