• CommercialEdge report: Biggest U.S. office markets showing signs of life

    CommercialEdge report: Biggest U.S. office markets showing signs of life

    IMAGE COURTESY OF COMMERCIALEDGE.

    Is the U.S. office market entering recovery mode as the country emerges from the COVID-19 pandemic? The latest research from CommercialEdge suggests that this might be the case, even if the sector’s recovery is still in its earliest stages.

    According to CommercialEdge’s June 2021 National Office Report, asking office rents across the top 50 U.S. markets averaged $38.36 a square foot in May. This was a small jump of 0.4 percent from the same month a year ago, and is a continuation of an upward trend throughout the past year.

    It’s true that the increases have been small, but office rents have risen steadily during the challenging months of the pandemic, according to CommercialEdge’s research. The research firm is predicting now that the pace of office rent increases is likely to pick up.

    In the Midwest, Nashville’s office market saw an average asking office rent of $31.46 a square foot in May. That’s up 3.3 percent from a year ago, beating the national average rent increase. In Chicago, the average listing office rent per square foot was $28.24 in May, an increase from a year ago but a small one at 0.2 percent.

    In the Minneapolis-St. Paul market, asking office rents averaged $26.85 a square foot in May. That’s actually down 1.3 percent from where these rents stood in May of 2020.

    No Midwest market could compare to Los Angeles. CommercialEdge reported an average office listing rate of $41.04 a square foot, up 7 percent from May of 2020.

    Not surprisingly, with so many people working from home throughout the pandemic, office vacancy rates have jumped during the last year. CommercialEdge reported that U.S. office vacancy rates increased by 240 basis points in May when compared to the same month a year earlier. The U.S. office vacancy rate averaged 15.6 percent across the top 50 markets in May.

    In the Midwest, Nashville’s office vacancy hit stood at 19.4 percent in May, a significant jump of 830 basis points from 12 months earlier. Chicago’s office vacancy rate was 16.8 percent in the month, up 260 basis points from a year ago. And in the Minneapolis-St. Paul market, the office vacancy rate was 15.8 percent, up 420 basis points from May of 2020.

    Despite the struggles that the office market has seen, investors are still sinking their dollars in this sector. CommercialEdge, though, says that investors are focusing today on the highest quality of office assets.

    Transactions closed during the firt five months of 2021 totaled $22.5 billion. That puts 2021 investment activity roughly on par with the total office sales volume recorded in 2020.

    CommercialEdge reported that medical office space has been a significant driver of office investment. The company’s report said, too, that office assets in central business districts and other urban core submarkets continued to attract the most interest from investors. The sales price for urban office property averaged $429 a square foot during the first five months of the year, a jump of 4.5 percent compared to the same period in 2020.

    It’s no shock, then, that most of the new office property now under construction is located in urban cores. CommercialEdge reported that only 29 percent of office space under construction is being developed in suburban submarkets. Overall, nearly 161 million square feet of office space remains under construction in the top 50 U.S. office markets.