Developers broke ground on a little over 6 million square feet of office space during the first quarter of 2023, according to the latest Yardi Matrix office report.
Report Highlights:
- Direct asking office rents averaged $38.22 per square foot in March, up 150 basis points from March 2022.
- Office vacancy rates continued to climb, clocking in at 16.7 percent across the top 50 U.S. office markets.
- Similarly, the under-construction pipeline contracted, totaling 117.5 million square feet of office space as of March.
- Office transaction volume nationwide totaled $6.5 billion year-to-date, and the average price per square foot stood at $195.
National average full-service equivalent listing rates averaged $38.22 per square foot in March, increasing by 150 basis points year-over-year. Year-over-year, full-service rates declined most dramatically in Brooklyn (20.0 percent), Austin (5.5 percent), Washington, D.C. (2.8 percent) and Dallas (1.0 percent). At the other end of the spectrum, San Diego (18.8 percent), Orlando (11.2 percent) and Seattle (10. 5 percent) had the highest increases in average listing rates.
Nationwide office vacancy clocked in at 16.7 percent in March, up 20 basis points when compared to the same period in 2022. Markets with growing under-construction pipelines and a strong tech footprint had the biggest increase in vacancy rates over the past 12 months. Examples that speak to this trend include Austin (630 basis points), Portland (440 basis points) and Seattle (370 basis points).
Office transaction volume in the first quarter of 2023 reached $6.5 billion. Investment activity was concentrated in Boston ($680 million year-to-date in March), Miami ($435 million), Houston ($431 million) and Manhattan ($417 million). Office assets traded at a per-square-foot average of $195, with Manhattan ($1,002 per square foot), the Bay Area ($604 per square foot) and Boston ($555 per square foot) commanding the highest sale prices.
Office construction declines further
The active pipeline continued to shrink, the Yardi Matrix report shows. Some 117.5 million square feet of office space was under construction across the nation at the end of March, accounting for 1.8 percent of total stock. Following the same path, new office construction has slowed down in recent years, with only 6.1 million square feet of new office space breaking ground this year. Future office construction will likely be focused on life science properties, owner-occupied buildings or preleased assets, Yardi Matrix expects.
Austin (6.2 million square feet underway, 7.0 percent of stock) boasted the largest pipeline on a percentage of stock basis, closely followed by Nashville (3.6 million, 6.4 percent). As of March, Boston had 13.1 million square feet underway, accounting for 5.5 percent of total stock. San Diego had 4.9 million square feet under construction, representing 5.3 percent of total stock.
Read the full Matrix Office National Report-April 2023
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