• National industrial in-place rents averaged $7.10 per square foot in January, up 6.9% year-over-year  
• The national vacancy rate stood at 4.0%, up 10 basis points month-over-month 
• Nationwide, 691 million square feet of industrial space was under construction 
• Industrial transactions totaled $1.1 billion at an average sale price of $125 per square foot 
• Western markets posted the widest lease spreads, with the Inland Empire registering a spread of 28.2%  
• Columbus recorded the second lowest vacancy rate nationwide at 1.7% 
• Dallas led the nation in development with a 61.6 million-square-foot pipeline 
• New Jersey sales volume second highest among leading markets at $149 million 

Demand for industrial space has remained elevated since the onset of the pandemic and owners are benefiting from this when leases expire. Yardi Market Insight, a cutting-edge service that uses anonymized and aggregated data from other Yardi platforms found that of the 63 markets it covers, 44 reached a lease spread greater than 10%. Of these, 16 markets had spreads wider than 20% in January.  

The widest spreads are generally found in port markets and logistics hubs, although some tertiary and emerging markets have also seen outsized lease spreads as well, the CommercialEdge U.S. industrial market report noted.

“Savvy investors are already seeking out projects with shorter lease expiration schedules and seem to be willing to pay a premium for them. It’s another opportunity to benefit from the historic run-up in rates as vacancy remains tight.”

Peter Kolaczynski, CommercialEdge Senior Manager

With such substantial spreads, properties with leases that expire soon will be more attractive on the transaction market. Given the current interest rate environment and economic uncertainty, leasing expiration schedules could be the difference between a deal penciling out or not. 

Rents and Occupancy: New Supply to Put Slight Upward Pressure on Vacancy Rates 

National in-place rents for industrial space averaged $7.10 per square foot in January, up 6.9% year-over-year and seven cents over December, according to the CommercialEdge industrial market report. Leases signed in the last 12 months reached a national average of $9.01 per square foot, $1.88 more than in-place contracts.  

Some of the widest spreads between new leases and the market average were in Los Angeles ($7.26 more per square foot), the Inland Empire ($6.06), Orange County ($5.43), New Jersey ($3.61), Nashville ($3.35) and Miami ($3.31) — a trend that held steady over the past few quarters with little variation.  

Average Rent by Metro

The national vacancy rate was 4.0%, an increase of 10 basis points over the previous month. After months of decreases, this marks the second month in a row that the national vacancy rate has increased. The upticks have been minor but are likely driven by record levels of new supply. It will be worth watching if vacancies continue a slow upward push or plateau off in coming months. 

The lowest industrial vacancy rates in the country were found in the Inland Empire (1.6%), Columbus (1.7%) and Charlotte (2.2%). Despite the low vacancy rates, heavy new supply is putting downward pressure on industrial rent rates in some markets, especially in those with more developable land. For instance, in Charlotte, rents increased only by 2.8% year-over-year in January, meanwhile industrial projects underway accounted for 5.3% of existing stock — the third largest pipeline nationwide on a percentage-of-stock basis. 

Supply: Logistics Remain a Major Driver of Industrial Development

Nationally, 691 million square feet of new industrial supply was under construction as of January, accounting for 3.8% of existing inventory. An additional 706.6 million square feet were in the planning stages, for a potential stock increase of 7.7%.   

Industrial Space Under Construction (Million Sq. Ft)

While industrial construction is happening in markets across the country, much of it is concentrated in a handful of markets. The 10 largest pipelines make up nearly 40% of all stock under construction and the top two markets (Dallas and Phoenix) account for one-sixth of all square footage currently being built. 

Most of the new construction is fueled by the logistics sector, especially in Dallas. The largest project in the market is a 2.5 million-square-foot Walmart fulfillment center in Lancaster, Texas. Beyond that property, there are 13 logistics buildings under construction — including both new properties and expansions at existing sites — that are larger than one million square feet. 

Transactions: Sales Activity Likely to Slow in 2023 Despite Investor Appetite

There were $1.1 billion in industrial transactions in January, according to the CommercialEdge industrial report. The national average sale price in January of this year came in at $125 per square foot. 

Although demand for industrial real estate remains high, transaction volume is likely to fall this year, industrial property outlooks predict. Rising interest rates are slowing investment across all asset classes and the industrial sector is not immune. The higher cost of capital is leading investors to reevaluate their allocations and underwriting assumptions. 

2023 Year-to-Date Sales (Millions)

Investors are also worried that inflation could continue to eat away at yields if leases at properties include only minor escalations. A potential recession on the horizon could dampen tenant demand in all but prime markets, although vacancies are tight enough that a mild economic downturn would likely have minimal effect.   

The run-up in prices that has occurred over the last few years means that there is a smaller pool of attractive properties that can pencil out for investors. The average sale price of an industrial property in the fourth quarter of 2022 was $134 per square foot, a 76% increase from the first quarter of 2019. 

Western Markets: Southern California Logs the Highest Lease Spreads in the Country 

The ports of Los Angeles and Long Beach set records for numbers of containers handled in recent years and were a key bottleneck during the worst of the supply chain crisis. This led to skyrocketing demand for industrial space and, in turn, to Southern California having some of the nation’s largest leasing spreads.  

The Inland Empire, the hottest industrial market in the country, recorded a lease spread of 28.2%, Los Angeles 22.8% and Orange County 14.9%. Southern California industrial markets are so crowded that nearby markets are experiencing overflow demand. The Central Valley’s lease spread stood at 17.2%, Las Vegas’ at 15.9% and Phoenix had a spread of 16.5%.  For Phoenix, the wide lease spread is especially noteworthy as the market delivered more than 52 million square feet in the last three years for a 15% stock increase. 

Southern California’s wide spreads meant that in Los Angeles a new lease cost $7.26 more per square foot, in the Bay Area $6.18, in the Inland Empire $6.06 and in Orange County $5.43. Taking into account that Orange County, Los Angeles and the Bay Area were the only markets where overall lease rates were in the teens, new contracts were being inked at dizzying rates. In Los Angeles, new contracts were just 5 cents short of $20 per square foot. At the same time, the Bay Area and Orange County averaged $18.30 per square foot for new leases.  

West Regional Highlights 

The four Southern California markets where new leases surpassed $10 per square foot, were joined by two more western counterparts: Portland and Seattle. Here, new leases averaged $10.45 per square foot and $10.72 per square foot, respectively.  

Similarly, Western markets also claimed some of the lowest vacancy rates among the country’s leading industrial markets. Specifically, the Inland Empire remained the tightest market with a vacancy rate of just 1.6%. Furthermore, Phoenix tied with Indianapolis for the fifth lowest vacancy rate among leading markets at just 2.4%, with L.A. close behind at 2.8%. Admittedly, some Western markets had somewhat higher vacancy rates. Specifically, Portland, Denver and Seattle surpassed the 4% national average, with January vacancy rates at 4.7%, 5.4% and 5.5%, respectively. 

Tight vacancy rates continue to push new construction across the country, with most of that supply developed in a handful of leading markets. In fact, the 10 most significant industrial markets account for 40% of stock currently under construction, with about 15% of the national construction pipeline to be delivered in Dallas and Phoenix.  

Industrial Space Under Construction & Planned (% of stock) 

As has increasingly been the case since the pandemic, the still-growing pressure of demand placed on Southern California has increasingly spilled over into Phoenix, where there are fewer challenges for industrial development, especially in terms of land availability and land acquisition costs.  

As a result, Phoenix reached an under-construction pipeline of 52.5 million square feet, the largest pipeline on a percentage of stock basis and second only to Dallas in terms of square feet. At the same time, the Inland Empire’s pipeline closed January at 30 million square feet for the third largest pipeline nationwide, while Denver’s 12.8 million square foot under construction total equaled 5.1% of its current stock — the fourth largest in the U.S. on a percentage-of-stock basis. 

Looking at transactions, the Bay Area led the country in the first month of 2023, closing $169 million in sales at $237 per square foot. Seattle also stood out with the fifth largest sales volume in January at $48 million for an average price of $325 per square foot, a rate surpassed only by Los Angeles at $449 per square foot. 

Midwestern Markets: Rent Growth Remains Slow Even in Established Logistics Hubs 

The Midwest’s most active logistics markets registered some of the lowest industrial vacancy rates in the country, with Columbus at 1.7% and Indianapolis at 2.4%. And while these rates outperformed even port markets, including Los Angeles’ and New Jersey’s 2.8% rates, the Midwest’s markets remained among the slowest in the U.S. 

To begin with, rent growth has been sluggish in the Midwest. Even low-vacancy markets such as Indianapolis and Columbus, recorded year-over-year increases below the 6.9% national rate in January. Specifically, Indianapolis logged a 3.4% rent increase, with Chicago and Columbus inching up 3.5%. The Twin Cities market experienced a rate gain of 3.3% and St. Louis a mere 2.1%.  

Lease spreads were also the lowest in Midwestern markets, especially those that have not established themselves as logistics hubs. In Kansas City the spread was 4.4%, in St. Louis it stood at 4.8%, while Chicago and the Twin Cities registered spreads of 5.4% and 5.8%, respectively. Yet even in Indianapolis, one of the most active logistics markets in the country, the lease spread was only 7.6% in January. 

Midwest Regional Highlights 

The slower growth in rents and lease spreads in the region can be attributed to a more rapidly expanding industrial inventory. New supply is much easier to build in these places than the port markets, giving tenants more of an upper hand in rent negotiations than they would have in Southern California or along the East Coast.  

On a percentage-of-stock basis, Indianapolis had the largest construction pipeline in the Midwest, with 4.6% of its stock underway, followed by Columbus with 4.5% of inventory under construction. In terms of square footage, Chicago came in first with more than 26.8 million square feet of space under construction.  

As markets with substantial lease spreads are expected to be the most attractive to investors, sales activity in January remained low in the Midwest overall. Nonetheless, Indianapolis recorded the third largest sales volume nationwide with $112 million, traded at $123 per square foot. The fourth largest volume was recorded in Columbus, where investors closed $50 million in industrial sales at an average of $303 per square foot. 

Southern Markets: Logistics Drives Dallas Construction 

Among the top 30 U.S. industrial markets CommercialEdge surveyed, Charlotte recorded the third lowest vacancy rate at 2.2%, coming in after the Inland Empire (1.6%) and Columbus (1.7%). Miami, Nashville and Atlanta followed with 2.6%, 3.0% and 3.2%, respectively. Most leading markets in the South registered vacancy rates below the national rate of 3.8%, except for Memphis (4.5%), Tampa (5.5%) and Houston (8.8%). In fact, Houston had the highest vacancy rate nationwide.  

Despite the low vacancy rate, rent growth was slow in Charlotte, rising only 2.8% year-over-year in January. Nonetheless, markets such as Miami and Atlanta saw average lease prices rise 7.2%, exceeding the 6.9% national rate.  

The widest lease spread in the South was recorded in Nashville, where in-place rents stood at $5.47 per square foot, while new leases signed over the past 12 months averaged $8.82 per square foot. Tenants in Miami also signed at robust premiums, with new leases costing $3.31 more than in-place rents. These were also some of the widest spreads recorded nationwide, although they were comfortably outpaced only by Southern California markets and New Jersey.  

When it came to markets with high vacancy rates, lease spreads were more modest: Houston in-place rents stood at $6.26 per square foot, whereas new leases were signed at $6.40. 

South Regional Highlights 

Dallas – Fort Worth had the largest pipeline in the country with 61.6 million square feet under construction and an additional 49.5 million square feet in the planning stages. The Metroplex has been an industrial boomtown for a while now, delivering more than 199 million square feet (23% of stock) since the start of 2016, with much of that in logistics parks or large fulfillment centers. Despite massive levels of new supply, the Dallas industrial vacancy rate sat at 3.6% in January. 

Among southern markets, Charlotte recorded the largest sales volume in January: It closed $47 million in industrial deals at $111 per square foot. However, in terms of price per square foot, Dallas came in first with $125, in line with the national average. At $105 per square foot, Nashville was the only other Southern market with a sale price above $100 per square foot. 

Northeastern Markets: $149 Million New Jersey Sales Volume Second Highest in the U.S. 

Akin to what’s happening on the West Coast, overflow demand on the East Coast is driving up lease spreads both in port markets and in adjacent places. For example, Allentown-Bethlehem had a lease spread of 21.6% as of January, Boston sat at 22.5% and New Jersey at 18.8%. In Boston, that translated into a premium of $2.42 per square foot for newly inked leases, while New Jersey industrial contracts were signed for an average $3.61 per square foot more in January.  

It also meant that in both Boston and New Jersey, new leases surpassed the $10 per square foot threshold. They were two of only nine markets nationwide to reach that level. Specifically, new leases averaged a rate of $12.82 per square foot in New Jersey, while Boston tenants signed at $11.57 per square foot in January. 

While Boston’s vacancy rate was on the higher end, New Jersey continued to post one of the lowest figures among leading industrial markets at 2.8%. At the same time, Philadelphia was in line with the national average of 4.0%, closing January with a vacancy rate of 4.1%. 

Northeast Regional Highlights 

In terms of development, Philadelphia had close to 20 million square feet of new industrial space under construction in January, representing 4.8% of its existing stock — the sixth highest supply pipeline in the U.S. But Philadelphia is planning for even more, with projects under construction and those in the planning stages potentially increasing the local stock by as much as 12.6%.  

New Jersey also ended January with a robust pipeline: 11 million square feet of space were under construction that will increase this East Coast port market’s footprint by 2.0%, while planned projects might add another 2.2%. Boston had a more modest pipeline compared to both cities, but the 6.6 million square feet of space under construction here will increase the local industrial stock by 2.8%. 

When it came to sales, both Boston and Philadelphia were off to a slower start: January sales totaled $3 million in Boston and $4 million in Philadelphia. While Boston posted a modest average sale price, Philadelphia’s industrial deals averaged $149 per square foot. New Jersey, however, was off to a dynamic start: industrial assets traded for an average of $202 per square foot, totaling $149 million. That meant that New Jersey had the second largest sales volume in January, surpassed only by the Bay Area’s $169 million total.   

Economic Indicators: Warehouse Employment Continues to Slide

The e-commerce boom that began with the pandemic led to a massive upsurge in employment in the warehousing and storage sector of the economy, according to the Bureau of Labor Statistics. Between April of 2020 and June of 2022, the sector grew by 46%, adding 695,000 workers. Since that June peak, however, the sector has lost 20,000 workers. 

Economic Indicators 

There are multiple drivers of the decline in warehousing and storage employment. A tight labor market is allowing workers to find higher-paying jobs, while service jobs that disappeared during the pandemic have since returned. Yet the main force behind the contraction is the largest employer in the sector: Amazon.  

The e-commerce behemoth has delayed, paused or outright canceled facilities and listed millions of square feet for sublease. Amazon’s frenzied hiring during the first two years of the pandemic fueled most of the growth in the sector but now the company has slowed hiring. A turnover rate estimated to be higher than 100% means that a slowdown in hiring leads to declining employment. 

Warehousing and Storage Employment 

Download the complete February 2023 report for a full picture of how U.S. industrial markets fared in the first month of the year, including insights on industry and economic recovery fundamentals.

You can also see our previous industrial reports.

Methodology

The monthly CommercialEdge national industrial real estate report considers data recorded throughout the course of 12 months and tracks top U.S. industrial markets with a focus on average rents; vacancies (including subleases but excluding owner-occupied properties); deals closed; pipeline yield; forecasts; and the economic indicators most relevant to the performance of the industrial sector.

CommercialEdge collects listing rate and occupancy data using proprietary methods.

• Average Rents —Provided by Yardi Market Expert, a cutting-edge service that uses anonymized and aggregated data from other Yardi platforms to provide the most accurate rental and expense information available.
• Vacancy — The total square feet vacant in a market, including subleases, divided by the total square feet of office space in that market. Owner-occupied buildings are not included in vacancy calculations.

Stage of the supply pipeline:

• Planned — Buildings that are currently in the process of acquiring zoning approval and permits but have not yet begun construction.
• Under Construction — Buildings for which construction and excavation has begun.

Sales volume and price-per-square-foot calculations for portfolio transactions or those with unpublished dollar values are estimated using sales comps based on similar sales in the market and submarket, use type, location and asset ratings, sale date and property size.

Year-to-date metrics and data include the time period between January 1 of the current year through the month prior to publishing the report.   

Market boundaries in the CommercialEdge industrial report coincide with the ones defined by Yardi Matrix and may differ from regional boundaries defined by other sources. 

The post Port Markets and Logistics Hubs Record Hefty Premiums for New Industrial Leases  appeared first on CommercialEdge.

• The average U.S. office listing rate stood at $38.04 per square foot, up 1.1% year-over-year  
• Up 80 basis points year-over-year, the national vacancy rate rested at 16.6%  
• Under-construction office space reached 123 million square feet or 1.9% of total stock 
• Office sales totaled $1.9 billion in January, with assets trading at $202 per square foot 
• Remote work and tech layoffs continue to push Denver vacancy rates higher, reaching 18.3% 
• Listing rates in Chicago and the Twin Cities were among the four lowest in the country 
• Dallas led development in the South with nearly 7.4 million square feet underway 
• Boston recorded the highest average sale price at $1,054 per square foot 

In the years since the pandemic unsettled the office market, many have been anticipating an increase in distressed offices. While distressed activity has been muted to this point, weak demand, falling prices and a potential recession could lead to an increase in distressed sales in 2023, as well as one of the smallest sales volumes since the Great Recession, the CommercialEdge U.S. office market report reveals. 

Higher interest rates have already put pressure on owners with floating-rate debt and will provide a substantial challenge for loans that need to be refinanced this year. Remote and hybrid work have become entrenched and the tech industry — which drove much of the leasing of office space in recent years — is now contracting and laying off workers, thus further decreasing demand for office spaces.   

“We know distress activity will increase this year. We are closely monitoring the loans that are coming due and how they are being handled on both the owner and lender side.”

– Peter Kolaczynski, CommercialEdge Senior Manager

Metros with high quality office products might be better positioned to weather the storm, as tenants continue to look for well-amenitized, Class A office space in premium locations. This trend is expected to put downward pressure on older assets, especially those that are not well-located and well-kept, positioning these at a higher risk of distress as well.  

Additionally, with demand for office space continuing to be lower, we expect that many of the distressed properties that are sold may be targeted for redevelopment and conversion into life sciences or multifamily properties. 

Listing Rates and Vacancy: Vacancy Increases Accelerate in Tech-Heavy Metros 

Across the top 50 U.S. office markets, the average full-service equivalent listing rate was $38.04 in January, an increase of 1.1% over the past 12 months. At the same time, the U.S. office vacancy rate continued to rise, reaching 16.6%, up 80 basis points over January 2022. 

Although office vacancy rates continued to climb in most markets, some places have seen rates rise more rapidly than others since the pandemic upended the office market. Metros that owe their rapid growth to the tech sector have particularly felt the pressure of the remote work culture and recent tech layoffs.  

Top Listings by Metro Area: January 2023

Despite the steady rise in vacancy rates over the last couple of years, listing rates are still holding steady, thanks to tenants’ flight to quality. In January, the average listing rate for Class A and A+ office space was $46.70 per square foot, marking a 2.0% increase year-over-year. At the same time, Class B rates fell 0.7% to $30.11 per square foot.  

In terms of location, office assets in CBDs claimed the highest listing rates at $51.43, up 3% over the past 12 months, while suburban assets stood at $30.47, also up 3.1% year-over-year. Urban office spaces, however, continued to depreciate, with rents falling 4.3% below the figures recorded at the beginning of 2022. 

Supply: Five Markets Account for One Quarter of National Construction Pipeline

As of January, there was 123.6 million square feet of office space under construction nationally, accounting for 1.9% of total inventory. The top five markets by total square footage — Boston, Manhattan, Dallas, Austin and San Francisco — accounted for more than a quarter of all new supply being built. 

Office Space Under Construction (Million Sq. Ft) 

The influx of people into Texas in recent years has helped prop up office markets that have been hit by remote work. Dallas has let developers remain active in the market, with 4.1 million square feet started last year and more soon on the way. The Fields — a 180-acre, $2 billion mixed-use project in Frisco — will eventually include four million square feet of office space alongside retail, restaurants, apartments and hotels. 

Although offices in urban locations experienced the sharpest decline in asking rents, developers were most active in these areas. As of January, there were more than 66.5 million square feet of office space under construction in urban locations, representing 4.9% of total stock. Meanwhile, offices in CBDs and suburban areas are set to increase the national stock by 1.4% and 1.2%, respectively.  

Transactions: Distressed Sales Likely to Increase in 2023

CommercialEdge recorded $1.9 billion in office transactions in January, with properties trading at $202 per square foot.  

But taking into account the overall economic uncertainty, the entrenchment of remote work and the upheavals triggered by increased interest rates, office market outlooks anticipate that there will not be much capital for office transactions this year.  

Investors may still be able to find loans for well-located buildings with strong occupancy and cash-flow, but for the most part, deals for office buildings will likely fail to materialize. It’s expected that office transaction volumes in 2023 will be at their lowest levels since the years following the Great Financial Crisis. 

Year-to-Date Sales (Millions) 

Higher interest rates have already put pressure on owners with floating rate debt and will provide a substantial challenge for loans that need to be refinanced in 2023. The national average sale price of an office property fell from $269 per square foot in the first quarter of 2022 to $214 per square foot in the fourth quarter. A flood of distressed office sales could trigger a downward price spiral for offices. 

Distressed sales will most likely increase in frequency this year, but it is too early to say whether it will be a large wave. With demand for office space continuing to be soft, many of the distressed properties that are sold may be targeted for conversions into life sciences or multifamily, with some razed and entirely redeveloped. 

Western Markets: Remote Work Drives Up Vacancies in Denver 

With vacancy rates rising across the nation’s largest office markets, the West also followed suit. For instance, Denver’s vacancy rate in January stood at 18.3%, up 200 basis points (bps) over the last 12 months and 370 basis points over the last two years. Other leading tech markets, such as Seattle, San Francisco, and Portland also saw their office vacancy rates increase by 1.47%, 2.87 % and 3.20% year-over-year in January.  

In fact, all leading western markets experienced continued increases in vacancies over the past 12 months. While Portland’s 3.2% rise was the most significant, even San Diego — with its thriving life sciences sector — saw a year-over-year uptick of 0.27%. This lifted the local vacancy rate to 14.09%, which is still the lowest among leading western office markets. 

Circling back to Denver, the main cause of increasing office vacancy rates in the Mile High City is remote work. According to the Census Bureau’s American Community Survey, 28% of respondents in the market reported working from home, one of the highest shares in the country. Additionally, Denver has benefited from robust growth in the tech sector in recent years, and the layoffs currently hitting that industry will hamper the market. Denver’s sublease rate was 1.8%, a figure that could move upward in the future. 

West Regional Highlights 

Despite a nearly 19% vacancy rate, San Francisco continued to lead the West in asking rents at $67.43 per square foot. Local trends show that listing rates were still growing at a healthy pace here, further widening the pricing gap between San Francisco and other West Coast markets. Those include the Bay Area which at $57.06 per square foot demanded the second highest asking rents. 

Additionally, the West Coast’s top markets also led the region in terms of office development: San Francisco and Seattle both had 6.5 million square feet under construction in January, accounting for 4.2% and 4.7% of their existing stocks, respectively. And while the Bay Area’s office pipeline is set to increase the existing local stock by just 2.9%, that will still add 5.8 million square feet of new offices.

The three markets also had ample new stock in the planning stages, with San Francisco’s under construction and planned pipeline as high as 20%. However, considering the increasing headwinds faced by both the office and tech sectors, much of that planned pipeline may not materialize. In particular, there is growing nationwide concern regarding a potential spike in distressed office sales, due to low occupancy, expiring leases and maturing loans.  

Sale Price by Asset Type 

Tenant flight-to-quality has been taking place since the pandemic, with firms decreasing the size of their footprints but increasing the quality of the space they lease. This puts older assets, especially those that are not well-located and have not been well-maintained, at high risk of distress as well. Yet even trophy towers are not exempt, with Brookfield defaulting on $784 million in loans for two office towers in downtown Los Angeles. 

For now, however, distressed sales have remained mostly in the realm of future worries. But what has materialized is the decrease in sale prices for office assets: While Q1 2022 averaged $290 per square foot, Q4 ended at $271 per square foot. Moreover, January assets traded at an average $202 per square foot, totaling $1.9 billion, a third of which was concentrated in just two markets: Houston and Miami. On the West Coast, Los Angeles had the highest sales volume with $96 million in office deals, followed by San Francisco’s $73 million sales volume and Phoenix with $57 million.  

Midwestern Markets: Chicago & Twin Cities Off to a Slow Start in 2023 

The Midwest office market remained one of the most sluggish nationwide, with key fundamentals in the region’s leading markets changing little overall. Asking rents in Chicago saw a slight 0.26% uptick month-over-month in January, ticking up to $27.80 per square foot.  

At the same time, the St. Paul – Minneapolis market closed the month at $25.85 per square foot, decreasing 0.8% compared to December. These rates were among the four lowest in the country, accompanied by Phoenix’s $27.58 per square foot and Orlando’s $24.75 per square foot rates.  

At 19.44%, Chicago also recorded the fourth highest vacancy rate across the country in January, remaining flat both month-over-month and year-over-year. In the Twin Cities, vacancy rates did increase somewhat, inching up 0.12% on a month-over-month basis. Year-over-year, however, the metro experienced a higher 0.55% increase in vacancy rates, stabilizing at 15.07%. 

Midwest Regional Highlights  

Considering the region’s fundamentals and Chicago’s recent incentives to encourage office conversions, developers continue to remain wary of bringing too much new supply to the market. As of January, the Windy City had nearly 2.7 million square feet in the pipeline, accounting for 0.9% of its stock. Meanwhile, the Twin Cities had 676,369 square feet of office space underway in January, representing 0.6% of total inventory, outpacing only Tampa’s 382,099 square feet. 

And while Chicago ended 2022 among the top 10 metros for office transactions with $3.2 billion in sales, investors closed a mere $22 million in deals in January. The Twin Cities recorded the same amount in transactions, with the average sale price per square foot coming in at $203.  

Southern Markets: Developers’ Confidence in Dallas Continues to Increase  

Markets in the South continued to reap the benefits of the pandemic-driven worker migration and company relocation trends. Thanks to the more affordable local cost of living and business-friendly environment, Texas markets have especially benefited from the influx of residents, boosting developers’ confidence in the region. 

Although Austin had the largest construction pipeline on a percentage-of-stock basis at 7.6% (both in the region and nationally), Dallas led development in the region in terms of square footage, with nearly 7.4 million square feet underway. Vacancy rates have also been more resilient in the metro, increasing only 0.4% over the past 12 months, underscoring developers’ confidence in the market despite the headwinds faced by the office sector.  

Office Space Under Construction & Planned (% of stock) 

In terms of sales volume, another Texas market, Houston, took the lead nationally, closing $324 million in office deals in the first month of the year. This also broke down to an average price of $184 per square foot. Miami had the second largest sales volume nationwide at $316 million but resulted in a significantly higher sale price of $549 per square foot. 

Moreover, Miami also had the fourth-highest listing rate among the country’s top 25 markets, closing January at $47.24 per square foot. Austin and Washington, D.C. also recorded rates in the $40 range, exceeding the $38.04 per square foot national average. At the bottom of the list stood Tampa ($28.11), and Orlando ($24.43), although both metros saw slight increases on a month-over-month basis. 

South Regional Highlights 

Vacancy rates remained in the high teens in most markets in the South, with the exception of Houston and Atlanta where vacancy rates hit 25.99% and 20.03%, respectively. Austin had the third-highest vacancy rate in the region at 19.13%, up 283 basis points compared to January 2022. Nonetheless, this uptick in Austin office vacancies is negligible, considering the large amount of space that hit the market last year. At the same time, office vacancy rates remained flat month-over-month in Charlotte, with the metro’s 13.21% vacancy still one of the lowest rates in the region. 

Northeastern Markets: Boston Leads the Nation with Largest Construction Pipeline by Square Footage 

Among the 25 largest office markets in the U.S., Manhattan remained on the top for office asking rates at $75.74 per square foot, well above the second-highest rate recorded in San Francisco ($67.43) per square foot and the third-highest rate of $57.06 per square foot in the Bay Area. Overall, most office markets in the Northeast registered rates below the national average of $38.04 per square foot, with Philadelphia’s the lowest at $31.42 per square foot. 

In terms of vacancies, Brooklyn still had the largest amount of vacant space in the Northeast in January, with rates at 19.71%. On the national level, this rate was exceeded only by Atlanta’s 20.3% and Houston’s 25.99%. But Manhattan’s average vacancy rate grew at the fastest pace in the region, increasing by 2.59% compared to January 2022. 

Northeast Regional Highlights 

Developers were most active in Boston, with 12.9 million square feet of office space underway as of January, accounting for 5.4% of its total stock. Looking at it in terms of square footage, Boston had the highest pipeline nationwide, but also the second highest on a percentage-of-stock basis. Conversely, New Jersey had the lowest pipeline in the region, with roughly 1.5 million square feet or 0.8% of its total inventory under construction. 

In line with national trends, sales activity was muted across leading Northeastern markets: New Jersey was in the lead with $96 million in office transactions, followed by Philadelphia’s $69 million sales volume and Boston’s $56 million. Nonetheless, Boston saw the highest average sale price at $1,054 per square foot. 

Office-Using Employment: Washington D.C. Struggles to Add Jobs 

Office-using sectors of the labor market grew 3.1% year-over-year in January, with professional and business services adding 82,000 workers in the month and financial activities adding 6,000 according to the Bureau of Labor Statistics (BLS). However, the information sector lost 5,000 jobs per the same source. 

Office-Using Employment Growth by Sector  

In the nation’s capital, office-using employment growth remained sluggish. Metro employment data for December showed Washington, D.C. growing at just 0.4% year-over-year, the lowest rate of growth among the top 25 office markets covered by CommercialEdge.  

Yet slow growth in traditional office-using sectors only paints a partial picture of the struggles in D.C.’s office industry. Unlike other markets, much of D.C.’s office employment is made up of government workers, and BLS data shows that employment in the federal government sector fell 3.5% in 2022. Further compounding issues for the market, the federal government has embraced remote and hybrid work as well, considering it a competitive advantage in a tight labor market. 

Download the PDF report to view more, including the map for office-using employment growth. 

You can also see our previous office reports. 

Methodology 

This report covers office buildings 25,000 square feet and above. CommercialEdge subscribers have access to more than 14,000,000 property records and 300,000 listings for a continually growing list of markets. 

CommercialEdge collects listing rate and occupancy data using proprietary methods. 

Listing Rates — Listing Rates are full-service rates or “full-service equivalent” for spaces that were available as of the report period. CommercialEdge uses aggregated and anonymized expense data to create full-service equivalent rates from triple-net and modified gross listings. Expense data is available to CommercialEdge subscribers. National average listing rate is for the top 50 markets covered by CommercialEdge. 

Vacancy — The total square feet vacant in a market, including subleases, divided by the total square feet of office space in that market. Owner-occupied buildings are not included in vacancy calculations. 

A and A+/Trophy buildings have been combined for reporting purposes. 

Stage of the supply pipeline: 

Planned — Buildings that are currently in the process of acquiring zoning approval and permits but have not yet begun construction. 

Under Construction — Buildings for which construction and excavation has begun. 

Office-Using Employment is defined by the Bureau of Labor Statistics as including the sectors Information, Financial Activities, and Professional and Business Services. Employment numbers are representative of the Metropolitan Statistical Area and do not necessarily align exactly with CommercialEdge market boundaries. 

Sales volume and price-per-square-foot calculations for portfolio transactions or those with unpublished dollar values are estimated using sales comps based on similar sales in the market and submarket, use type, location and asset ratings, sale date and property size. 

Year-to-date metrics and data include the time period between January 1 of the current year through the month prior to publishing the report.   

Market boundaries in the CommercialEdge office report coincide with the ones defined by Yardi Matrix and may differ from regional boundaries defined by other sources. 

The post Weak Demand, Falling Prices and Potential Distressed Activity Predict Muted Sales for 2023   appeared first on CommercialEdge.

Walkable urban spaces are known as well-connected, mixed-use areas, including different real estate products from multifamily and single-family housing to retail and office spaces, as well as recreational areas, such as museums or sports venues, located within a half-mile radius. 

The 2023 Foot Traffic Ahead report, released by Smart Growth America and produced in collaboration with Places Platform LLC, takes an extensive look at walkable urbanism in the U.S. by ranking the top 35 metros based on what percent of their real estate inventory (by square footage) is in walkable areas. The report focuses on four asset types: office, multifamily, retail and for-sale housing. 

Across the 35 metros ranked, around 16% of all four real estate products are in walkable urban places, the report reveals. However, the proportions between these product types in walkable spaces differ significantly. Overall, 42.1% of all office spaces in the top 35 metro areas are in walkable urban spaces. Multifamily makes up 30.4%, retail 18.5%, whereas for-sale housing accounts for 11.6%.  

To rank the metros, the study draws on data from Yardi Matrix, Rocktop Partners, the American Enterprise Institute Housing Center and other publicly available data.

Coastal Metros Take the Lead in Walkability 

Looking at all four property types, the highest-ranking metro regions for walkability are New York City, Boston, Washington, D.C., Seattle, Portland, San Francisco, Chicago and Los Angeles. On the other end of the spectrum, the lowest-scoring regions include Orlando, San Antonio and Las Vegas.  

Unsurprisingly, the most walkable urban metros tend to be on the coast, with historic rail transit networks and a history of more compact urbanism predating 1940. However, the lowest-scoring metros — mostly in the Sunbelt — are just undertaking the effort to introduce walkable urbanism for the first time in generations, the study notes. 

While the percentage share of different product types varies across the metros, office and multifamily products are the most concentrated in walkable urban places, followed by retail. New York City stands out with 73.2% of its office, 70.3% of its multifamily and a significant 59.1% of its retail space in walkable areas.  

At the same time, Boston has 47.3% of its office, 44.4% of its multifamily and only 11.2% of its retail inventory in walkable urban spaces. The lowest ranking metro, Las Vegas, has only 6.5% of all office, 4.4% of all multifamily and 7.4% of all retail in walkable areas.  

Walkable Urbanism Puts Upward Pressure on Real Estate Prices 

The walkability scores have a notable economic impact on metropolitan regions and the overall U.S. economy. Although walkable urbanism accounts for roughly 1.2% of the land within the largest 35 metros, it accounts for 19.1% of all U.S. real GDP. Evidently, this means that walkable hubs account for a large amount of the region’s tax revenues from land values and other sales taxes. However, this also resulted in a price premium for office and multifamily products in these areas.   

While the percent change in premiums has decreased since 2018 in almost every metro region largely due to the pandemic, real estate in walkable urban spaces is by no means more affordable now. For instance, in New York City, the price for office product premium decreased by 52% from 2018 to 2021, but still stood at 105%. At the same time, the premium in Boston was positioned at 83%, down only 5% over the same period.  

Conclusions 

The high demand for walkable urbanism and the lack of supply is expected to continue to drive up price premiums in the near future. According to the report, the imbalance between supply and demand underscores the urgency of policy and zoning reforms regarding the development of well-connected mixed-use communities to promote social equity, drive economic activity and boost overall health and resident satisfaction.  

The post Walkable Urbanism to Drive Future Real Estate Development in the U.S.  appeared first on CommercialEdge.

However, maximizing listing exposure can be challenging without the right technology. Relying on outdated or manual processes to sync information across marketing channels can hinder lead opportunities. Thus, it’s crucial to centralize property information in a single, connected system that allows for automation and eliminates inconsistencies for a seamless experience for prospective tenants. 

Utilizing multiple listing services feeds (MLSs) and listing syndication services is one of the primary methods of ensuring heightened listing visibility and an increased lead flow. A single content distribution platform allows you to keep all your listings up to date on all marketplaces where they have been syndicated. For example, as soon as lease information is updated on a property, the listing will disappear from all listing services without the need to manually remove the space from different marketplaces. 

Maximize Leads on Your Listings  

By leveraging the CommercialEdge Listing Network, part of the Yardi commercial marketplaces, you can automatically distribute to the rapidly expanding network of marketing channels, which includes CommercialCafe, CommercialSearch, PropertyShark, Point2 Commercial and 42Floors.  

These marketplaces rank on the first page of Google, bring in more than 2 million visits per month and generate over 300,000 qualified commercial real estate leads annually. The CommercialEdge Listing Network ranks in the top 10 spots on Google with more than 1,500 keywords and hundreds of those claim the top three positions. Some of the search phrases with high rankings are “New York City office space for rent,” “Los Angeles commercial real estate,” “Chicago commercial real estate,” “Austin commercial real estate” and more. 

Commercial real estate professionals can publish their listings on the network by creating a free account on the CommercialEdge Marketing platform. This allows agents and brokers to post unlimited free commercial real estate listings (covering all asset classes), with the option to syndicate to the entire CommercialEdge Listing Network.  

Additionally, for heightened exposure and maximized lead opportunities, CRE professionals can strategically promote listings with premium ads, ensuring they are on the top of search pages across the entire network. 

The CommercialEdge Listing Network 

• CommercialCafe 

CommercialCafe markets commercial offerings across multiple asset types. Tenants can search for commercial and coworking spaces across the country, with the possibility to compare listings and contact brokers who list their spaces on our network. 

• CommercialSearch 

CommercialSearch is updated daily and tailored for all commercial asset types. This marketplace encompasses properties listed for sale and lease, and easily connects tenants with brokers for a seamless experience. The internet listing site provides CRE brokers the opportunity to market their properties and manage their portfolio of listings while increasing exposure across the entire CommercialEdge network of marketplaces.    

• PropertyShark 

PropertyShark provides entry-level research and data on residential and commercial real estate properties across the U.S., offering insights into sales, ownership and distressed assets to a wide range of real estate professionals from brokers to investors. Beyond this, PropertyShark also provides residential, commercial real estate and coworking listing services, allowing real estate professionals to find and research investment opportunities across the country. 

• Point2  

Point2 is another site within the CommercialEdge Listing Network with a reliable and up-to-date listings inventory that includes all commercial property types, as well as single-family homes and residential communities marketed by major brokerages, attracting an active and engaged audience. Tenants can search hundreds of thousands of listings and easily connect with a broker through our intuitive platform. Point2 is available in the U.S. and Canada.     

• 42Floors 

The most recent addition to the CommercialEdge network, 42Floors can bring your property in front of a growing audience to help you maximize exposure and boost your business’ growth. The recently redesigned website provides access to a high-quality commercial property search engine, including more than 320,000 listings across the country.    

The Yardi network of listing platforms also includes CoworkingCafe and the recently acquired CoworkingMag. Both websites consistently rank high in Google searches, helping operators and commercial brokers boost exposure for flexible office spaces. 

A Complete Solution to Power Effective Marketing 

CommercialEdge Marketing, part of the CommercialEdge complete software solution for CRE brokerages, provides a streamlined way to maximize leads on CRE listings. Through centralized and automated listing management, CommercialEdge Marketing allows for an easy and optimized publication of listings, ranking your properties high in search results. The marketing module also ensures effortless syndication to leading third-party marketplaces as well as your own website to boost exposure. 

Additionally, the CommercialEdge marketing platform can be synced with Yardi property management software to automatically update data on spaces and properties regarding key lease information, such as expiration dates. This data can be used to automatically publish and unpublish listings as spaces become available or occupied. 

Other tools for optimized marketing available through the CommercialEdge platform include automated emails and brochures. The platform automatically pulls in property and listing data and sends emails to a contact or list of contacts, eliminating any manual processes. Similarly, it’s possible to create brochures using branded templates and real-time listing information — these brochures are efficient in email marketing or listing websites. 

• • • 

With continuously changing CRE market dynamics, leasing professionals who draw on finely tuned marketing strategies will capture the most opportunities to elevate business growth. Leveraging the power of a strong listing network in one centralized system can help you boost your lead pipeline with less effort and more efficiency. CommercialEdge Marketing offers a streamlined solution for powerful lead generation and listing syndication.   

The post Capture Leads with the 2^nd Largest Commercial Listing Network in the U.S.   appeared first on CommercialEdge.

Headquartered in Bethesda, Maryland, Global Medical REIT is a net-lease medical office real estate investment trust. With a portfolio exceeding 4.9 million square feet across the U.S. as reported as of Sept. 30, 2022, the REIT acquires and leases purpose-built healthcare facilities to leading healthcare systems and physician groups.  

The company’s disciplined investment strategy focuses on uncovering high retention and patient-centric acquisition opportunities in premier secondary markets bolstered by favorable demographic and decentralization trends. Through this approach, Global Medical REIT consistently provides strong returns for its shareholders and ensures lasting relationships with its tenants. 

The Challenge: Limited Portfolio Reporting and Multiple Systems 

With 189 medical properties across the U.S., Global Medical REIT strives for total transparency and requires access to portfolio-wide reporting for easy data access across teams that streamlines leasing activities and deal flow processes.  

Before implementing CommercialEdge Deal Manager, the firm encountered difficulties with its previous solution due to high costs and the lack of access to portfolio-wide reporting, leading to inefficiencies in their deal management processes. Additionally, the tool lacked the possibility of business-wide process integration, which resulted in discrepancies in the leasing data.   

The Solution: Access to On-Demand Data and Detailed Reporting 

Deal Manager, part of the CommercialEdge solution suite, is a leading CRM and deal-making software offering full transparency and visibility into deal metrics throughout the lease lifecycle. Key metrics can be viewed on demand for proposal evaluations and more, while detailed reporting provides actionable insights and helps with performance analysis by property, market, agent and other attributes. 

By integrating Deal Manager with Yardi property management software, clients gain real-time tenant- and lease-level data such as schedules, expenses and clauses, as well as access to current unit availability, floor plans and interactive stacking plans. This integration streamlines communication and enables clients to enter deal terms, track proposals and calculate and store net effective rent at the deal level.  

“Deal Manager has helped us streamline our leasing activity and deal flow. The system has facilitated better communication and coordination between brokers and internal decisions makers, and the integration with Voyager has automated processes, which has increased productivity.”

Daniel Magney, Asset Manager, Global Medical REIT

The Story: One Connected Solution with Portfolio-Wide Reporting and Insights 

As a Yardi client since 2018, Global Medical REIT was already an active user of Yardi Voyager and, by adding Deal Manager, the company found the answer to its portfolio-wide reporting challenges. Moreover, this one connected solution helped the firm streamline its leasing activity and deal flow. 

“Deal Manager provides an excellent tracking system for busy asset managers and brokers and greatly assists with the progression of the deal as well as the analysis needed to make good leasing decisions. Since we are already Yardi users, it is an efficient way to assist in our budget forecast program. This program is also very intuitive for our users and requires little handholding with third-party users.”

 Dawna Powell, VP, Asset Management, Global Medical REIT

Easy and fast access to accurate leasing data 

Thanks to Deal Manager, the Global Medical REIT accounting team is more self-sufficient and can access leasing activity without asking the asset management team for information. 

Global Medical REIT captures every property’s activity across its portfolio and can provide reports to investors with greater speed and accuracy. At the same time, working with external brokers is also easier due to the tool’s intuitive interface, which requires little training and ensures effective collaboration for all parties involved.  

Seamless implementation 

Since smoothly transitioning from its previous system to Deal Manager, Global Medical REIT can generate portfolio-wide reports and has a complete pipeline overview, all in one place. The company was able to transfer all its deals and go live with Deal Manager in just a matter of weeks. 

“Deal Manager provides our organization with a cost-effective tool that enables us to manage our leasing pipeline all in an easy-to-use interface. The Yardi team made the implementation quick and easy; we were able to go live in a few weeks.”

Sean Tu, SVP of Asset Management, Global Medical REIT

The post Global Medical REIT Streamlines Deal Flow and Portfolio-Wide Reporting with Deal Manager  appeared first on CommercialEdge.