Office Market Real Estate Trends

U.S. Office Market Outlook – January 2024

US Office Market Outlook January 2024
Image by peeterv/iStockphoto.com

The spread between the average sale price of Class A/A+ and Class B properties fell to $112 per foot, the latest Yardi Matrix report shows.

Report Highlights

  • The average full-service equivalent listing rate was $37.64 per square foot at the end of 2023, a 1.4 percent decrease when compared to December 2022.
  • Office vacancy continued its upward trajectory, reaching 18.3 percent in December across the top 50 U.S. office markets, up 180 basis year-over-year.
  • The under-construction pipeline continued to diminish, featuring 96.9 million square feet of office space at the end of 2023.
  • Nationwide office transaction volume totaled $33.8 billion throughout 2023.
  • Office assets changed hands at an average of $196 per square foot.

Office vacancy surges, rates fluctuate

As of the end of December 2023, the national office vacancy rate was 18.3 percent, reflecting a 180 basis-point rise compared to the same period last year, according to Yardi Matrix data. The markets experiencing the most significant year-over-year increases in office vacancy were Detroit (470 basis points), San Francisco (430 basis points), Washington, D.C. (420 basis points), Seattle (410 basis points) and Denver (400 basis points).

Meanwhile, the national average full-service equivalent listing rates in December 2023 averaged $37.64 per square foot, marking a 140 basis-point decrease year-over-year and 9 cents less than the previous month. Only three markets achieved average in-place rent increases surpassing the 2 percent threshold: Boston (26.6 percent year-over-year), New Jersey (5.3 percent) and Tampa, Fla. (2.3 percent).

At the other end of the spectrum, notable decreases in listing rates occurred in Manhattan (8.0 percent year-over-year), San Francisco (7.8 percent), Charlotte (7.7 percent), Portland (6.9 percent) and Dallas (6.3 percent).

Spread between Class A and B assets diminishes

The under-construction pipeline continued to shrink by December 2023, with Yardi Matrix reporting 96.9 million square feet of office space underway, constituting 1.4 percent of the total stock. In contrast, 2023 saw the initiation of only 40.6 million square feet, a decline of over 35 percent from 2022 and well below pre-pandemic levels. Yardi Matrix anticipates further decreases in 2024 due to challenges in obtaining construction loans and rising office vacancy rates.

Specifically, as of the end of 2023, Boston had 14.6 million square feet of office space underway, accounting for 5.9 percent of the total stock. Austin and San Diego's active pipeline totaled a little over 5 million square feet, representing 5.4 percent of each market's stock. Nashville had 2.7 million square feet of office space underway, or 4.7 percent of the stock. San Francisco had close to 7 million square feet of office space under construction (4.4 percent), while Seattle's pipeline featured 5.8 million square feet, or 4.1 percent of the total stock.

Office investment throughout 2023 reached $33.8 billion, with the average sale price standing at $196 per square foot. Office prices are decreasing across all categories, with high-quality properties experiencing more significant declines than mid-tier ones. In 2023, the average sale price of Class A/A+ buildings dropped by 21.1 percent year-over-year to $390 per square foot, while Class B property prices fell by 8.5 percent to $278. The spread between the average sale prices decreased to $112 per square foot, one of the smallest spreads ever recorded by Yardi Matrix.

Read the full Matrix Office National Report-January 2024.

About the author

Corina Stef

Corina Stef started her tenure as a music journalist a decade ago and has been occupying a full-time real estate editor and blogger position since 2017. She is a senior associate editor with Commercial Property Executive and Multi-Housing News who focuses on commercial real estate trends and in-depth stories.

Add Comment

Click here to post a comment