The office construction pipeline has seen a 40 percent decline over the past two years, the latest Yardi Matrix US office market outlook report shows.
Report Highlights
- The average full-service equivalent listing rate stood at $37.74 per square foot at the end of March, a 1.3 percent decrease from March 2023.
- Office vacancy rates in the top 50 U.S. office markets rose to 18.2 percent in March, marking a 120-basis point increase year-over-year.
- The under-construction pipeline dwindled to 87.9 million square feet of office space by March.
- Nationwide office transaction volume totaled $5.4 billion in the first quarter of 2024.
- Office properties traded at an average of $171 per square foot.
Tech hubs spearhead nationwide vacancy surge
The nationwide office vacancy rate continued its upward trend, reaching 18.2 percent by March, up by 120 basis points compared to the previous year. This rise is attributed to the widespread adoption of remote and hybrid work models, leading to reassessments of office needs. Notably, tech hubs like San Francisco (510 basis points year-over-year), Seattle (390 basis points), San Diego (380 basis points), the Bay Area (350 basis points) and Denver (330 basis points) saw substantial increases.
In March, national full-service equivalent listing rates averaged $37.74 per square foot, reflecting a 130 basis points decrease from the previous year. Noteworthy increases in average in-place rents were observed in New Jersey (5.0 percent), Austin (4.5 percent), Miami (3.8 percent) and Atlanta (3.0 percent).
Declining office construction pipeline reflects market shift
As of the end of March, the under-construction pipeline featured 87.9 million square feet of new office space nationwide, constituting about 1.3 percent of the total office stock. The office construction pipeline has seen a nearly 40 percent decline over the past two years due to decreased demand, rising capital expenses and stricter lending standards. Office starts averaged 64 million square feet annually from 2020 to 2022, falling to 44.1 million square feet in 2023, and a mere 2.8 million square feet in the first quarter of 2024.
In March, Boston had 13.9 million square feet of office space under construction, representing 5.6 percent of the total stock. San Francisco followed with 5.3 million square feet (3.3 percent), closely trailed by Dallas (5.1 million square feet, 1.8 percent) and Austin (4.3 million square feet, 4.6 percent).
Total office investment in the first quarter of 2024 amounted to $5.4 billion, with an average property sale price of $171 per square foot. Transaction activity was concentrated in Washington, D.C. (999 million), the Bay Area ($404 million), Dallas ($257 million), New Jersey ($215 million) and Boston ($207 million).
Read the full Yardi Matrix Office Market Report: April 2024.
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