Office Asking Rates, Vacancy Stall
Investment in the office market continued its positive movement, bolstered by increased interest in the life sciences subsector.
Report Highlights
- Direct asking office rents averaged $38.62 per square foot in August, unchanged from the previous month and up 1.2 percent from the same period last year.
- Office vacancy declined slightly, averaging 15.4 percent across the top 50 U.S. office markets.
- Sales activity picked up the pace.
- Investors are targeting premier life science assets in key markets.
Office sales year-to-date in August totaled close to $45 billion, with investment in quality office product continuing its upward trajectory. Office transactions in the second and third quarter of 2020 amounted to $19.7 billion, while this year the second and third quarters combined—with a month left in the third quarter—amounted to $29.9 billion, Yardi Matrix data shows. What’s more, office sales volume in the fourth quarter—the busiest of the year—is expected to surpass last year’s $61.8 billion. Traditional biotech clusters such as Bay Area, Boston and San Francisco led the way in investment sales, pointing toward growing interest and demand for premier life science properties.
Rates Halt Progress as Vacancy Stabilizes
National office asking rates stalled, remaining the same since July 2021. Similarly, office vacancy remained above the 15 percent rate starting with March 2020. Although 210 basis points higher than in August 2020, it fell 10 basis points from the previous month, pointing toward further market stabilization.
However, markets such as Denver, recorded a 600 basis point-increase in vacancy since August 2020. This was attributed to new office stock entering the market—such as Block 162—which also drove asking rates in the metro to $30.25, a 5.5 percent increase.
Some 156.7 million square feet of office space was under construction across the nation as of August. The active pipeline continues to shrink; Some 38.2 million square feet of office space was completed in the first eight months of the year, while construction starts fell behind in most markets. An exception is Austin, where 3.4 million square feet of office space broke ground as of August, spurred by office-using job growth and high-profile relocations including Tesla and Oracle.
Read the full Matrix Office National Report-September 2021
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