Austin Claims 7% of National Office Construction Pipeline Amid Growing Investor Interest

Key Takeaways:

• U.S office listing rates averaged $37.37 per square foot in April
• The national vacancy rate slid to 15.7%, returning to January figures
• Office sales volume reached $26.7 billion, with the national average sale price at $277
• The office construction pipeline totaled 148.2 million square feet nationwide

As the office sector continues to evolve and adapt to a post-pandemic business landscape, one pathway that promises resiliency is the inclusion of office spaces into mixed-use developments. While the 2010s brought an upsurge of live-work-play mixed-use developments, the arrival of COVID-19 raised fears that the trend would fall flat as workers stayed home and foot traffic nearly evaporated.

However, with companies now increasingly adopting hybrid work models, office spaces in mixed-use projects can afford the advantage of in-place amenities like shopping and dining, which can help commercial tenants entice workers back to the office. For owners and developers, a mixed-use model can offer more long-term resiliency through diversified space usage across a variety of asset types.

For more details on the national construction pipeline and additional office fundamentals, download the full May 2022 report at the bottom of the page.

Charlotte and Miami Feature Highest Year-Over-Year Listing Rate Increases

The average full-service equivalent listing rate stood at $37.37 in April across the top 50 U.S. office markets, down 2.5% year-over-year. The national listing rate also marked a $1.28 decrease month-over-month.

At an individual market level, Charlotte ($32.29/sq. ft) and Miami ($47.76/sq. ft) recorded the most significant listing rate gains for the second month in a row, after Charlotte posted a 12.2% price increase and Miami gained 10.9%.

Conversely, San Francisco ($63.71/sq. ft) and Portland ($28.2/sq. ft) marked some of the most significant drops in listing rates, decreasing 7% and 5.7% year-over-year, respectively.

National Vacancy Rate Returns to January Levels After Slight March Uptick

Tenant absorption throughout April brought the national vacancy rate to 15.7%, marking a year-over-year decrease of 30 basis points.

Compared to March, the national vacancy rate was 20 basis points lower in April, returning to the 15.7% vacancy rate that the office sector had been resting at since January. Since the start of the year, the national vacancy rate had remained stable at 15.7%, with the exception of March when it inched up to 15.9%.

Among the country’s top office markets, Atlanta and Chicago posted some of the highest vacancy rates, closing April at 20.7% and 20.2%, respectively.

Looking into sublease spaces across the country, availability has surged since the pandemic as companies continue to embrace hybrid work policies and offload excess space. As a result, 2% of the national office stock is currently available for subleasing, with those figures climbing higher in leading markets, such as San Francisco’s 5.9% sublease vacancy rate.

Ten Markets Surpass $1 Billion in Office Sales Since Start of 2022

Year-to-date, national office sales have totaled $26.7 billion, a somewhat elevated figure compared to the same period in 2021. Of this, $13.5 billion originated in the ten markets than surpassed $1 billion in sales during the first four months of the year. Some of the largest sales volumes were recorded in New Jersey ($1.54 billion) and Los Angeles ($1.45 billion), surpassed only by Manhattan’s $1.84 billion total.

With office investors focusing on high-quality assets, the national price per square foot for office reached $277 in April. At the market level, Manhattan also posted the highest sale price at $949/sq. ft, followed by San Francisco’s $776/sq. ft sale price and Seattle’s $538/sq. ft.

Austin Leads Office Construction With 7% of National Pipeline

The office construction pipeline totaled 148.2 million square feet of office space in April, representing 2.2% of the national stock, with an additional 6% in the planning stages. Compared to the previous month, April figures showed an additional 3.5 million square feet of office space joining the supply pipeline. This comes as domestic migration trends continue generating demand in the Sun Belt, as well as in cities with significant life science industries, such as Boston and the Bay Area.

While Charlotte dominates pricing trends for Sunbelt office space, Austin remains in the lead when it comes to new developments: It currently has 10.3 million square feet of office space under construction. That represents11.7% of Austin’s existing stock and marks a 20-basis-point increase compared to March figures. In fact, Austin’s impressive development pipeline now accounts for 7% of the national office construction pipeline.

Download the full May 2022 report on performance across U.S. office markets, as well as insights on industry and fundamentals of economic recovery.

You can also see our previous office reports.

Methodology

This report covers office buildings of 25,000 square feet and above. CommercialEdge subscribers have access to more than 14 million property records and 325,000 listings covering 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. 
• Stages 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.