• The average rent for industrial space in the U.S. remained at $6.35 per square foot in September
• Vacancy across the top 30 U.S. industrial markets dropped 20 basis points M-o-M to 5.7%
• Year-to-date sales totaled nearly $42 billion, with average sale prices increasing in almost all markets
• September closes with 217 million square feet delivered since the start of the year

US Port Market Premiums Top National Lease Spread Increases

The average asking rent across the top 30 U.S. markets rested at $6.35 per square foot in September — 3.5% more year over year, but unchanged compared to the previous month. The highest rents and rent increases continue to be recorded in port markets. For instance, the average rent for industrial space in New Jersey saw the largest increase, of 6.4% over the past 12 months. The Inland Empire and Nashville followed close behind with year-over-year increases of 6.1% and 6%, respectively.

In terms of premiums, our analysis found that new leases in New Jersey cost, on average, $2.60 more per square foot than in-place leases. Boston followed closely with lease spreads of $2.53 per square foot.

Read to the end and download the full October 2021 report for updated lease rate and vacancy stats for all major U.S. markets.

Inland Empire Vacancy Shrinks to 1.1%, Indianapolis is Tightest Midwest Market at 2.3%

As the easing of supply chain bottlenecks continues to be slow, the availability of industrial space in port markets, as well as supporting regional logistic hubs remained significantly low. Sluggish shipment transit continues to see the Inland Empire posting minuscule vacancy rates — 1.1% in September. Though not a port market itself, this sizeable regional distribution hub takes on a significant portion of the shipping volume received from both Los Angeles and Long Beach ports.

Similarly, storage and distribution demand spilling outside intake markets has driven vacancy down considerably across several other landlocked hubs. For instance, industrial vacancy in Indianapolis hit 2.3% last month, while Columbus was at 2.4%, and Kansas City industrial real estate recorded an average vacancy of 3.4%.

National Price per Square Foot Exceeds $108

As industrial market fundamentals continue to attract significant investor attention, pricing continues an upward trajectory. The average sales price for industrial assets year to date reached $108.22 per square foot, which marked a 23% increase compared to last year.

Orange County is still in the lead, with an average sale price of $300.27 per square foot. The Bay Area average of $221.71 per square foot came in second, followed by Los Angeles at $210.68 per square foot, Seattle with $199.95 per square foot, and New Jersey averaging $192.77 per square foot.

Transaction activity during the first three quarters of the year resulted in a total of $41.7 billion in industrial sales.

More Than 6% of Stock Under Construction & Planned Across Top US Markets

The under construction pipeline increased more than seven million square feet through September across the industrial markets analyzed for this report. At the close of last month, under construction projects together with planned developments totaled 6.3% of stock. 

The sprawling Dallas-Fort Worth market continued to lead in terms new supply, with 36.5 million square feet currently under construction (4.5% of stock). Phoenix is home to the second-largest expansion pipeline, at 26.6 million square feet of industrial space in development (9.9% of stock). Meanwhile, Chicago is a very close third, with a nearly even 26 million square feet under construction (2.7% of stock).

The national supply forecast estimates yearly delivery volumes of at least 350 million square feet, through 2026.

Download the complete October 2021 report for a full picture on how U.S. industrial markets fared in the first nine months of the year, including insights on industry and economic recovery fundamentals.

You can also see our previous industrial reports.

Methodology 

CommercialEdge added new markets to the National Industrial Report as Yardi Market Insight has increased its coverage to more than 50 markets in recent months. As such, the national numbers in this and future reports are not comparable to past issues. 

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; and forecasts, as well as the economic indicators most relevant to the performance of the industrial sector. For a detailed methodology, download the full report above. 

The post Supply Chain Bottlenecks Keep Port Markets Tight & New Lease Premiums Soaring appeared first on CommercialEdge.

• Average U.S. office asking rents inched up to $38.72
• The office vacancy rate across the top 50 U.S. markets slipped to 15.4% in August
• U.S. office sales volume reached $45 billion during first eight months of 2021
• 38 million square feet of new office space delivered since the beginning of the year

U.S. Office Asking Rates Rest Just Below $40 per Square Foot in August

August office asking rent averaged $38.72 per square foot across the 50 largest U.S. office markets, plateauing at a 1.2% year-over-year (Y-o-Y) increase. This marked a near-stall, as the national average values increased just $0.10 from the previous month.

Among the markets surveyed for this report, full-service equivalent listing rate averages ranged between $21.93 per square foot and $83.91 per square foot. The highest year-over-year increase last month was recorded in Tampa, where rents averaged $31.01 per square foot following a 13.1% growth year-over-year. Coming in second, office space listing rates in Los Angeles ($41.42 per square foot) were on average 6.6% higher than in August 2020.

Cooler markets include Seattle, where office space asking rents averaged $36.01 per square foot last month, following a 1.5% year-over-year decrease. Office space in San Francisco hit the market for an average of $69.33 per square foot, which was 1% lower than in August 2020. Meanwhile, Houston office space rents saw a modest increase of 0.4% year over year, resting at $30.29 per square foot last month.

Download the full September 2021 report below for updated lease rate stats across all major U.S. markets.

Vacancy Dips 10 Basis Points Across Top Markets

The average vacancy rate rested at 15.4% in August — 210 basis points higher than the same time last year, but down 10 basis points from the previous month. However, data shows significant variety at market level, among the top 50 metros we analyzed. Vacancy rate averages vary between 10.8% and 22.7%.

Total vacancy for office space in Denver was 17.2%, following a 600 basis points increase year over year. Concurrently, the Phoenix office market was also at 17.2% vacancy in August, after it decreased 30 basis points over the past 12 months. Meanwhile, Philadelphia recorded an office vacancy rate of 12.3%, which was on par with the market’s vacancy at the same time last year.

2021 U.S. Office Sales Hit $45 Billion in August 

High-quality and high-potential office assets have maintained investor appeal throughout the pandemic. So far this year, office transactions amounted to $45 billion. One month shy of what is usually a busy fourth quarter for sales, office deals have already surpassed last year’s totals for the second and third quarters combined.

Office properties sold in the markets we analyzed traded for an average of $287 per square foot — a metric that has been seeing steady ascension since 2017. Here, too, there is significant variation among metros, most likely a reflection of the differences in quality of office assets available in each location. Manhattan office space commanded $1,192 per square foot on average, and sales in the market amount to $2.4 billion so far this year, through August. Meanwhile, $6.2 billion worth of office space changed hands in the Bay Area, where the average price per square foot rested at $584.

Under Construction Pipeline Accounts for 2.4% of Stock Across Top Markets 

As of August, a total of 156.7 million square feet of new office stock was under construction, continuing a shrinking pipeline phase that has seen fewer ground breakings than deliveries. With office markets still adjusting to transforming workplace concepts, projects that were started before the pandemic continue to be completed while new projects are making their way more slowly to construction start.  

In terms of office completions, 38.2 million square feet of new stock was delivered during the first eight months of the year. More than 90% of new office space brought to market is class A or A+ — a pre-pandemic standard for new construction that remains in high demand due to more and more environmentally conscious tenants at the negotiating table.

Download the full September 2021 report on performance across U.S. office markets, as well as insights on industry and fundamentals of economic recovery.

Methodology

The monthly CommercialEdge national office report covers properties that are at least 50,000 square feet in size. Listing rate information refers to full-service rates or “full-service equivalent” for spaces available as of the report period. Vacancy reporting includes sublease data and excludes owner-occupied properties. Sales and price-per-square-foot calculations do not always include portfolio transactions or property exchanges with unpublished dollar values. For a detailed methodology, download the full report.

The post Asking Rents Plateau at 1.2% YoY, Pipeline Shrinks Below 157MSF Under Construction appeared first on CommercialEdge.

• Rents across top markets were $6.64 per square foot, on average
• U.S. industrial vacancy rate averaged 5.8% in June
• Q1 & Q2 sales totaled $23 billion; average price per square foot reached $113
• 447 million square feet under construction; 451 million more planned

Los Angeles Sees Largest Average Rent Growth, Inland Empire Vacancy Drops Below 2%

Lease rates for industrial space in June were 4.2% higher year-over-year (Y-o-Y), averaging $6.64 per square foot. And, with West Coast port markets taking on significant increases in trade activity as global routes reopen, it’s no surprise that the industrial sector here is seeing the highest occupancy and lease spreads of nearly $2 per square foot. 

Specifically, the largest rent growth was recorded for industrial space in Los Angeles, where rates averaged $10.30 per square foot following a 6.7% Y-o-Y increase. Meanwhile, the vacancy rate here last month was 3.5%. Our most recent report, which you can download below in full, noted that new leases signed in the L.A. market during the past year cost roughly $1.55 more per square foot.

At the same time, the Inland Empire industrial sector slipped to second place last month in terms of lease rate growth, with a 12-month increase of 6.2% in average rents. However, it remains the most tightly packed among the industrial markets we analyzed, with vacancy reaching 1.6% in June. Accordingly, new Inland Empire industrial space leases closed during the past 12 months were approximately $1.21 pricier per square foot. Last month, the average rent for industrial property here was $6.36 per square foot.

Download the full report below for updated lease rate and vacancy stats for all major U.S. markets.

Year-to-Date Sales Top $23 Billion, Price Per Square Foot Soars to $113

E-commerce has enjoyed a well-documented rise throughout the past year. Now, it accounts for roughly 17% of core retail sales in the U.S. — and it’s expected to gain even more ground going forward. As a result, the increase in consumer demand has led to notably busier ports, as well as network expansion of last-mile and cold-storage facilities. Moreover, the massive transition in the last year of several aspects of daily life to the online medium has boosted interest in data center infrastructure investment. All this and more actively contribute to growing investor appetite for industrial assets.

To that end, sales of industrial property closed since the start of the year amounted to $23.3 billion by the end of June — roughly 52% of the total transactions in 2020. Likewise, deals closed during Q2 2021 averaged a sale price of $113 per square foot, up nearly 31% Y-o-Y.

Sprawling Inland Markets Ready to Pick Up Slack

By the end of June, developers had completed nearly 130 million square feet of the new industrial space due this year, while 447 million square feet was still under construction across the markets we analyzed. Additionally, as of June 30, approximately 451.1 million square feet was in the planning stages — and current pipeline forecasts estimate that this construction will yield around 300 million square feet annually through 2026. 

What’s more, issues related to the rising cost of materials and scarcity of developable land in coastal regions may result in more generous pipelines in inland markets, where land is more widely available and comes at a relatively lower cost. In fact, on a percentage of stock basis, Phoenix is already ahead in this regard: The 23.2 million square feet of new industrial space under construction here represents nearly 9% of stock. Thus, when factoring in the additional 32.9 million square feet that’s currently in the planning stages, the Phoenix pipeline expands to just under 21% of stock.

Kansas City follows in second place, with 11.3% of stock in the pipeline (both under construction and planned projects). Meanwhile, Dallas is third, with 9.2% of stock in the pipeline, of which 3.8% of stock is currently under construction.

Download the full July 2021 report below for in-depth insights on how U.S. industrial markets fared since the beginning of the year, as well as industry and economy recovery fundamentals. 

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; and forecasts, as well as the economic indicators most relevant to the performance of the industrial sector. For a detailed methodology, download the full report. 

The post More Than 1.5B SF New Industrial Space Estimated for Completion Through 2026 appeared first on CommercialEdge.

• Average U.S. office lease rates were up 1.1% year-over-year
• Office vacancy average held steady at 15.6% across top office markets
• Transactions closed since the beginning of the year surpassed $30 billion
• Nearly 30 million square feet of new office space delivered during first six months of 2021

Office Space Listing Rate Up 1.1% Y-o-Y in Major U.S. Markets

Across the top 50 U.S. markets, average asking office rents rested at $38.60 per square foot in June, continuing the steady upward trend seen throughout the past year. Specifically, last month, full-service equivalent listing rates were 1.1% higher year-over-year (Y-o-Y), on average. Notably, market conditions are significantly different now than the pre-pandemic norm. Therefore, the sustained growth in asking rates nationally was supported, in part, by markets with an abundance of high-quality office space coming online, as well as concession strategies in lieu of price adjustments. What’s more, the current increased appeal of properties compatible with life science tenants gravitates toward established R&D office clusters.

Specifically, Boston took the top spot in terms of rent growth: Average lease rates here marked a 7.6% increase Y-o-Y, resting at $35.46 per square foot last month. Across the country, the second-highest year-over-year rent growth was recorded in the Los Angeles office market, where lease rates averaged $41.29 per square foot — 7.2% higher than June of last year. In third place, with a 2.3 percentage point difference, was the Bay Area, where rents rested at $55.56 per square foot — a 4.9% increase from the previous year.

Download the full report below for updated lease rate stats across all major U.S. markets.

Average Vacancy Rate Remains Stable at 15.6% for 2nd Consecutive Month

The 240-basis-point Y-o-Y increase in office vacancy that we discussed in our previous report held steady for a second month in a row: In June, average office vacancy across the top 50 U.S. markets was unchanged, resting at 15.6% nationally.

Meanwhile, well-established local bioscience research scenes — along with an overall increased demand for laboratory space and an office presence for companies operating in related fields — fueled additional interest in a handful of markets, which accounted for upticks in leasing volumes. In particular, Boston recorded an average vacancy rate of 11.7% in June, and Charlotte’s average vacancy rate was 12.3% last month.

Office Sales Exceed $30 Billion in Q1 & Q2

At the same time, investors continued to direct capital along specialized acquisition strategies. In fact, sales data analyzed for this report showed that $30 billion worth of office assets have changed hands since the beginning of the year across the top 50 U.S. markets. Continued investment focus on specific high-quality assets has also maintained the sale price per square foot at historic highs. For example, last month, office properties nationwide traded for an average of $283 per square foot.

Our previous report had also highlighted the fact that, at the time, 2021 investment activity was roughly on track to match the total office sales volume recorded last year. However, this month’s analysis found that some markets had already exceeded their 2020 sales totals during the first two quarters of the year. Specifically, office sales closed in Miami through June of this year amounted to $1.25 billion — 223% more than the $386.6 million total sales volume in 2020. Similarly, office investment in Atlanta since the beginning of the year was at $1.14 billion at the end of June — 33% more than last year’s total sales.

161 Million Square Feet Under Construction Across Top Markets, 85 Million Scheduled for Completion in 2021

Historically, major economic events have brought about sweeping changes to industries, including how we interact with the spaces we occupy, as well as how these spaces are distributed across the country. As such, the current office pipeline is more a reflection of the state and shape of our economy prior to the COVID-19 pandemic than an indicator of how we end up adapting our professional, personal and leisure spaces going forward. Consequently, the 161 million square feet of office space that is currently under construction across the top 50 U.S. markets might be the first wave of the “new normal” in work space.

Finally, developers have completed nearly 30 million of the approximately 85 million total square feet of office space scheduled to be brought to market by the end of this year. To that end, current office construction forecasts expect 60 million square feet of new property to be developed yearly in 2022 and 2023, followed by a gradual tapering off to roughly 25 million square feet that is estimated to come online in 2026. 

Download the full July 2021 report on performance across U.S. office markets, as well as insights on industry and fundamentals of economic recovery.

Methodology

The monthly CommercialEdge national office report covers properties that are at least 50,000 square feet in size. Listing rate information refers to full-service rates or “full-service equivalent” for spaces available as of the report period. Vacancy reporting includes sublease data and excludes owner-occupied property. Sales and price-per-square-foot calculations do not always include portfolio transactions or property exchanges with unpublished dollar values. For a detailed methodology, download the full report.

The post Increased Interest in Life Science R&D Contributes to Leasing Volumes in Select Markets appeared first on CommercialEdge.

• National average rent reached $6.59 per square foot 
• Nationwide vacancy rate averaged 5.7%, ranging from 2% to 12% among markets
• Industrial property sales surpassed $18 billion during first five months of the year
• 456 million square feet of new industrial space currently in planning stages to quench growing demand 

Southern California Markets Lead Rent Growth & Occupancy Rate

Lease rates for industrial space averaged $6.59 per square foot in May, marking a 4.4% year-over-year (Y-o-Y) increase. The highest rent growth continued to be recorded in coastal cities, with the Southern California markets of Inland Empire and Los Angeles ranking first and second, respectively. Specifically, Inland Empire industrial space for lease increased by an average of 7.1% Y-o-Y in May, resting at $6.32 per square foot. At the same time, Inland Empire stock was at just 2% vacancy — the lowest rate among the markets surveyed for this report.

The second-highest 12-month increase in rents was for industrial space in Los Angeles, where rates averaged $9.97 per square foot following a 6.7% Y-o-Y growth. And, with e-commerce on a sustained upward trajectory, the Port of Los Angeles logged record activity, which directly translated to a regional demand that has been hard to keep up with. Here, the vacancy rate was 3.9% in May — the fifth-lowest among the markets we tracked, after Inland Empire; Nashville, Tenn. (3.1%); New Jersey (3.2%); and Orange County, Calif. (3.7%).

Meanwhile, the national vacancy rate in May was 5.7%. However, individual markets revealed significant differences. For instance, while California coastal markets saw minimal availability, the vacancy rate of industrial space in Houston reached 12% last month — the highest among the markets we tracked, followed by Boston (9.8%), Denver (8.6%) and South Carolina (8.4%).

Sale-Leasebacks Gain Popularity, Year-to-Date Sales Top $18 Billion

The data also showed that sale-leaseback transactions have become increasingly popular in the industrial sector during the pandemic. In fact, such deals accounted for 7% of the total sales closed last year and 9% of property trades made since the start of this year. In total, among the transactions closed during the previous 17 months across the markets we tracked, CommercialEdge identified sale-leasebacks amounting to $4.8 billion. Since the beginning of 2020, the price of a sale leaseback averaged $116 per square foot — significantly higher than the overall average of $93 per square foot of industrial space sold during that same timeframe.

Furthermore, as of May 31, $18.1 billion in transactions have closed across the U.S. industrial markets that we tracked for our latest report. In that timeframe, the average sale price per square foot for industrial space rested at $103 per square foot last month — 16.3% higher than May 2020. And, with investor interest for industrial assets expected to remain strong for the foreseeable future, sales activity in 2021 could match — or even exceed — the record $44.4 billion in transactions closed during 2020.

Notably, three markets stood out for individual sale totals that exceeded $1 billion in deals closed since the start of the year: Los Angeles ($1.3 billion), Inland Empire ($1.1. billion) and Chicago ($1.1. billion). Not to be outdone, Atlanta recorded the fourth-largest total of $959 million. It was followed by New Jersey in fifth place, where industrial sales closed through May of this year amounted to $949 million.

DFW, Chicago, Inland Empire Home to Largest Under Construction Totals

In May, 410 million square feet of new industrial space was under construction across the markets we analyzed. Of this, 28 million square feet was set to come online in the Dallas-Fort Worth metroplex alone. Furthermore, Chicago is set to welcome the second-highest amount of industrial square footage, with 20 million square feet under construction at the close of May. In the Inland Empire market, developers had nearly 18 million square feet of new industrial space under construction — the third largest pipeline nationwide, last month.

Since the start of the year, nearly 99 million square feet of new industrial space supply was brough to market. Data compiled for this report showed that nearly 456 million more square feet of industrial property was in the planning stages last month, and supply forecasts estimate an annual yield of between 250 and 350 million square feet through 2026. What remains to be seen is whether issues related to availability and cost of materials and developable land will lead to significant delays in the pipeline, or if the growing pressure of e-commerce expansion will be strong enough to push the delivery forecast through.

Download the full June 2021 report below for in-depth insights on how U.S. industrial markets fared since the start of the year, as well as industry and economy recovery fundamentals. 

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; and forecasts, as well as the economic indicators most relevant to the performance of the industrial sector. For a detailed methodology, download the full report above. 

The post E-Commerce Fuels Demand in Coastal Markets, Developers Are Pushing to Keep Up appeared first on CommercialEdge.

• U.S. average office lease rates up 0.4% year-over-year
• Office vacancy averages 15.6% across top 50 U.S. office markets
• Investors still channeling office sales activity mostly toward high-quality assets
• Office construction continues; only 29% of projects located in suburban submarkets

U.S. Office Space Listing Rate Up 0.4% Y-o-Y, Growth Expected to Pick Up Pace

Across the top 50 U.S. markets, asking office rents averaged $38.36 per square foot in May. This was an uptick compared to previous months, as well as a continuation of the upward trend seen throughout the past year. Specifically, average full-service equivalent listing rates in May were 0.4% higher year-over-year (Y-o-Y). And, despite minutely incremental growth, rents have steadily increased amidst pandemic-related challenges that affected commercial real estate nationwide. Furthermore, as our most recent report indicates, the pace of growth — driven by the overall high quality of stock that is currently on the market — is likely to pick up.

Looking at individual markets, Los Angeles office space saw the largest increase in average full-service equivalent listing rates. Here, it rested at $41.04 per square foot last month — a 7% markup compared to May 2020. Next, three markets shared the second-best spot in terms of year-over-year rent growth. Specifically, average asking rents were up 5% compared to May of last year for office space in the Bay Area ($55.40 per square foot in May), Boston ($35.13 per square foot) and New Jersey ($33.32 per square foot). Not far behind, the third-highest increase in rents last month was recorded in Philadelphia, where lease rates rested at $29.88 per square foot, up 4.9% Y-o-Y.

Download the full report below for updated lease rate trends across all major U.S. markets.

Average Vacancy Rate at 15.6% Across Major U.S. Office Markets

Office vacancy saw a year-over-year increase of 240 basis points and averaged 15.6% across the markets surveyed for this most recent report. At the same time, our analysis of the national office sector in May found that the generous amount of high-value office space entering, as well as reentering, the market has contributed to the sustained growth of lease rates throughout the past 12 months. What’s more, current trends are expected to continue as more new office space comes to market and the lease landscape continues to shift to accommodate changing work structures and workforce strategies.

Investor Capital Remains Laser-Focused in High-Quality Asset Acquisition Strategies

Meanwhile, sales data analyzed for this report showed that capital continued to move despite generally cautious approaches from both buyers and sellers. In fact, investor interest in office properties across the top 50 U.S. markets has not waned, but rather remains rather more focused on specific high-quality assets. This is in contrast to pre-pandemic acquisition strategies that had more of a wider net of interest in markets as a whole. As such, transactions closed during the first five months of the year totaled $22.5 billion, which puts 2021 investment activity roughly on track with the total office sales volume recorded last year.

Notably, medical office space — as well as lab and life science sector-compatible office properties — have been significant drivers of investment. Moreover, office assets located in central business districts and other urban core submarkets continued to attract the most interest and have maintained their average sale prices at record-high levels during the first months of this year. Consequently, the sale price for urban office property averaged $429 per square foot — a 4.5% increase compared to the previous year.

New Construction Continues at Rapid Pace, Urban Submarkets Hold Majority of New Stock in Pipeline

On track with pre-pandemic capital trends, as well as current investment tendencies, most of the new office property under construction is located in urban cores, with only 29% of stock being developed in suburban submarkets. And, since the beginning of the year, developers have completed more than 20 million of the 80 million total square feet of new office space that is forecasted by year-end across the markets we surveyed. Nearly 161 million square feet remains under construction.

In terms of the largest pipelines among the markets we tracked for this report, Manhattan and Boston stood out by far with 19.3 and 13.3 million square feet, respectively, currently under construction. In third and fourth place were the western U.S. markets of Los Angeles (8.8 million square feet under construction) and San Francisco (8 million square feet).

Remarkably, Austin came in fifth with a pipeline currently at 7.6 million square feet under construction, which accounts for 10% of stock. Including new office supply in the planning stages, Austin is looking at 28% of its stock currently under development — the largest pipeline in the country on a percent-of-stock basis.

Download the full June 2021 report on performance across U.S. office markets, as well as insights on industry and fundamentals of economy recovery.

Methodology

The monthly CommercialEdge national office report covers properties that are 50,000 square feet or larger. Listing rate information refers to full-service rates or “full-service equivalent” for spaces available as of the report period. Vacancy reporting includes sublease data and excludes owner-occupied property. Sales and price-per-square-foot calculations do not always include portfolio transactions or property exchanges with unpublished dollar values. For a detailed methodology, download the full report above.

The post High-Value Office Stock Sustains Lease Rate Growth & Focuses Investor Interest appeared first on CommercialEdge.

• U.S. average office lease rates maintain sluggish upward trend, now up 0.2% year-over-year
• Vacancy rate reaches 16% in top 50 U.S. office markets in April
• Investment activity based on asset quality drives office sale price per square foot to all-time high
• More than two-thirds of office space under construction is focused in urban submarkets

U.S. Office Space Listing Rate Up 0.2% Y-o-Y, Stalls Just Below $40 Per Square Foot

Office rents across the top 50 U.S. markets rested at $38.32 per square foot in April. And, although this marked a slight downward fluctuation of $0.35 compared to the previous month, average listing rates continued inching up along a generally positive trend. Specifically, average full-service equivalent listing rates in April were 0.2% higher year-over-year (Y-o-Y). Furthermore, analysis of individual markets showed average full-service equivalent listing rates span from more than $21 per square foot to roughly $83 per square foot.

In particular, Los Angeles stood out in terms of year-over-year growth, with average rents here ($40.65 per square foot) marking an increase of 6.5% compared to April 2020 — the largest 12-month rise in listing rates among the markets surveyed in the most recent CommercialEdge office report. Not far behind, the second-best performance in this respect was recorded for office space in Washington D.C., where average lease rates were up 4.8% Y-o-Y, resting at $42.22 per square foot. Finally, Boston was a close third with average listing rates rising 4.1% in the last 12 months and settling at $34.42 per square foot, on average.  

Meanwhile, corrective changes triggered by last year’s effect on the economy at large continued across several markets. For instance, in San Francisco, office space lease rates declined 5.1% Y-o-Y, landing at $68.23 per square foot last month. Similarly, full-service equivalent listing rates in Houston were 4% lower than they were in April 2020.

Download the full report for more details on lease rate trends across all major U.S. markets.

Vacancy Rates Average 16% Across Major U.S. Office Markets

At the same time, office vacancy rates marked a year-over-year increase of 290 basis points and reached an overall average of 16% across the markets we surveyed for this month’s report. Granted, this trend had been expected as millions of square feet of new office space continue to hit the market from projects that were already under construction prior to the onset of the pandemic last spring, as well as some leases that have been left to expire as workforce strategy adjustments are still under review.

Worth mentioning, however, are notable spikes in the amount of sublease space available across several large markets. Our latest monthly report found that total available sublease space more than doubled in 20 of the markets analyzed by CommercialEdge. More precisely, the highest sublease rates were found in San Francisco (4.4%), the Bay Area (3.7%) and Seattle (3.7%).

Investors Refine Acquisition Strategies, Drive Price Per Square Foot to Record High

While overall sales volume remains low compared to pre-pandemic investment activity, recent transaction data continues to prove that buyers are not shying away from spending top dollar on high-quality, high-potential office assets. Consequently, sale prices in April reached an all-time high of $304 per square foot, on average. So, rather than be intimidated by the general discourse on economic uncertainty, commercial real estate investors have maintained their focus on identifying and closing the right deals for their acquisition strategies. 

To that end, since the beginning of the year, 520 transactions totaling $17.8 billion have closed nationwide. Of course, certain markets carried significantly more weight than others: Notably, office sales closed in the Bay Area accounted for nearly $3 billion of the nationwide total, followed by investment in San Francisco office space ($2.6 billion).

20 Million Square Feet Delivered in 2021; 70% of Projects Under Construction in Urban Submarkets

Of the roughly 75 million square feet forecasted for delivery by year-end, nearly 20 million square feet of new office space has been completed since the start of the year. In total, roughly 162 million square feet of new office stock is currently under construction, 115 million of which is related to projects that are located in central business districts and other urban submarkets.

Moreover, from now through 2025, deliveries of new stock are estimated to continue at more than 50 million square feet per year in 2022 and 2023, followed by a tapering off of new supply beginning in 2024. That’s because the effects of the pandemic — driven by changes in work styles and workforce strategies — are likely to result in market adjustments to new office space characteristics and demands.

Download the full May 2021 report on performance across U.S. office markets, as well as industry insights and an analysis of economy recovery fundamentals.

Methodology

The monthly CommercialEdge national office report covers properties that are 50,000 square feet or larger. Listing rate information refers to full-service rates or “full-service equivalent” for spaces available as of the report period. Vacancy reporting includes sublease data. Sales and price-per-square-foot calculations do not always include portfolio transactions or property exchanges with unpublished dollar values. For a detailed methodology, download the full report above.

The post Growth of U.S. Office Lease Rate Stalls, Spikes in Sublease Rates Keep Vacancy Climbing appeared first on CommercialEdge.

• Average rate for U.S. industrial space increased 4.4% year-over-year
• Vacancy rate remained just above 6% as new stock meets increasing demand
• Sale price per square foot shot up 30% in 12 months
• Nearly 400 million square feet of new supply in development nationwide

Inland Empire, LA, Nashville See Largest 12-Month Rental Rate Increases

Following a year-over-year increase of 4.4%, national average rates for industrial real estate reached $6.53 per square foot in March, with western coastal markets seeing the largest increases in lease rates. Specifically, Inland Empire rates grew 8.2% compared to March 2020, while industrial space for lease in Los Angeles was 6.9% pricier year-over-year (Y-o-Y). Nashville industrial real estate boasted the third-largest rate of growth — 6.6% Y-o-Y.

In contrast, the markets where rents remained most stable during the last 12 months were Detroit, which saw a slight drop in average rates of 0.5% Y-o-Y; St. Louis, where average rental rates were effectively the same in March of this year as they were last year; and Kansas City, where rental rates for industrial space saw a modest uptick of 0.9% Y-o-Y.

Meanwhile, the Orange County market took the top spot in terms of actual prices, with industrial real estate here commanding $11.11 per square foot last month. The second-priciest rates were in the Bay Area, where leases averaged $10.48 per square foot.

High Absorption of New Space Keeps National Industrial Vacancy Rate Steady

Because new industrial space has been absorbed at a high rate, national vacancy remained relatively steady at 6.1% last month. Even so, across the markets we surveyed, industrial vacancy varied between 11.6% in Boston and 2.1% in the Inland Empire market throughout the month of March.

What’s more, the Port of Los Angeles has seen record trade volume each month, partly due to the growth of e-commerce in the past year. In turn, this has directly fueled even further tightening of space availability across the already hot Southern California industrial markets. For details on individual market vacancy rates and lease spreads, find the full report at the bottom of this page.

Q1 Industrial Sales Surpass $8B, Sale Price Per Square Foot Shoots up 30% Y-o-Y

Transactions closed during the first three months of this year totaled $8.1 billion across the U.S. industrial markets we tracked for our latest report. While this was notably less than the nearly $11 billion in Q1 sales last year, the sale price per square foot for industrial space in March 2021 was actually 29.1% higher year-over-year. On average, U.S. industrial assets traded for $110.04 per square foot last month.

In particular, investor interest in Southern California markets remained intense, as sales closed in Los Angeles and the Inland Empire accounted for more than 15% of the country’s total sales volume in the first quarter. Furthermore, with these same markets recording the largest 12-month rental rate increases nationwide, investor appetite for these assets is expected to remain strong for the foreseeable future.

Nearly 400 MSF Under Construction Nationwide, DFW & Chicago Boast Largest Pipelines

As of March 2021, there was 367.8 million square feet of new industrial space under construction across the top markets we analyzed for this report. Of this, 60.5 million square feet of new supply has already been delivered since the start of the year and an estimated 200 million square feet is scheduled for completion before the end of the year.

High-sprawl capacity markets continue to host the most generous pipelines. In this way, the Dallas-Fort Worth metroplex is first for industrial development, with 28,380,671 square feet currently under construction, which amounts to 3.9% of the total stock. Chicago is second in line, with current developments adding up to nearly 20 million square feet of new industrial supply. Houston industrial real estate is third, with 17,275,539 square feet of new construction currently underway.

Data surveyed for this report showed that nearly 420 million square feet of industrial property is in the planning stages, and forecasts point to a steady annual yield of between 250 and 300 million square feet through 2025.

Download the full April 2021 report for a full picture on how U.S. industrial markets fared in Q1, including insights on industry and economy recovery fundamentals.

For an even deeper dive into industrial fundamentals, supply forecasts and the overall impact of the pandemic, join CommercialEdge Senior Research Manager, Peter Kolaczynski, and Yardi Matrix Vice President, Jeff Adler, at the Industrial & Office National Outlook Webinar at 10 a.m. PT on Thursday, May 13.

Methodology

The monthly CommercialEdge national industrial real estate report considers data recorded over 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; and forecasts, as well as the economic indicators most relevant to the performance of the industrial sector. For a detailed methodology, download the full report above.

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• Average office lease rates nationwide increased 1.4% year-over-year
• Office vacancy continues a steady climb, partly due to new stock
• High-end office assets in top markets sustained investor confidence for $10.5 billion in total quarterly sales
• 163 million square feet of new office space is under construction nationwide, 70% located in central and urban markets

U.S. Office Space Listing Rates Inch Up 1.4% Y-o-Y, Approach $40/Sq. Ft Mark

Marking a 1.4% increase year-over-year (Y-o-Y), national office rents rested at $38.67 per square foot in March. On average, the full-service equivalent listing rates for office buildings equal to or larger than 50,000 square feet were $0.36 higher than the previous month.

Looking at individual markets, Manhattan office space was the priciest in the nation, with an average listing rate of $85.82 per square foot. Across the country, San Francisco was home to the second-priciest inventory, as office space here averaged a lease rate of $69.66 per square foot. Not far behind, the Bay Area recorded the third-highest average full-service equivalent listing rate across the markets we analyzed — $57.11 per square foot.

However, Bay Area office space came in first in terms of year-over-year growth, with the lease rate last month marking an 8.6% increase compared to March 2020. The second-largest increase was recorded in the Washington, D.C. office market, where average lease rates in March were 6.4% higher year-over-year. New Jersey office space ranked third, with average listing rates seeing a 3.9% increase over the previous 12 months.

As expected, last year’s effect on the economy at large also triggered corrective changes across several markets. For instance, Chicago office space marked a 4.5% Y-o-Y drop in lease rates, which rested at $27.59 per square foot last month. Similarly, full-service equivalent listing rates in Seattle were 3% lower than March 2020.

1 Year Into Pandemic, Office Vacancy Rates Continue to Climb

National office vacancy rates last month marked a year-over-year increase of 280 basis points, reaching an overall average of 15.6% across the major markets we surveyed for our latest report. Even so, it’s worth noting that the large-scale shift to remote work is only a contributing factor.

Rather, as mentioned in previous reports, a significant portion of new office space was already under construction prior to the onset of the pandemic in early 2020. Therefore, it comes as no surprise that competitive office markets — such as Seattle, Austin, San Francisco and the Bay Area — have seen their vacancy rates increase from single- to double-digits during the last 12 months as projects encompassing millions of new square feet of office space were being delivered.

Meanwhile, Manhattan office space boasted the highest occupancy in March, with the market recording a vacancy rate of 10.7%. The second-tightest office market in the U.S. last month was Boston, where vacancy hit 12%, marking a year-over-year increase of 240 basis points.

Investor Appetite for High-Quality Office Assets Remains High

Although fewer sales closed during Q1 than in previous years, certain sales carried significant weight in the U.S. office market’s quarterly sales volume. Specifically, the sales of The Exchange on 16th in San Francisco ($1 billion); 410 10th Ave. in Manhattan ($733 million); and the recently renovated The Crescent in Dallas ($700 million) accounted for nearly 25% of the total $10.5 billion in sales that was amassed during the first three months of the year.

And, while this is roughly half of the $20 billion in U.S. office transactions that CommercialEdge data shows for Q1 2020, the deals closed so far this year indicate that high-quality office properties in well-established markets continue to attract significant investment.

14 MSF Delivered in Q1; 70% of Ongoing Construction in Urban Markets

Developers have completed 13.7 million square feet of new office space since the beginning of the year, with forecasted deliveries of nearly 64 million square feet due before year-end. Notably, data on all ongoing office construction across the markets we surveyed — including all future completion estimates — show that most of the 162.6 million square feet of new office space currently in development is in higher-density areas. Specifically, 70% of new stock in development is located in central business districts and urban markets. This is contrary to earlier pandemic speculations regarding a predicted outflow of development to suburban areas.

Download the full April 2021 report to see a detailed picture of how U.S. office markets fared in Q1, as well as insights on industry and economic recovery fundamentals.

For an even deeper dive into office fundamentals, supply forecasts and the overall impact of the pandemic, join CommercialEdge Senior Research Manager, Peter Kolaczynski, and Yardi Matrix Vice President, Jeff Adler, at the Industrial & Office National Outlook Webinar at 10 a.m. PT on Thursday, May 13.

Methodology

The monthly CommercialEdge national office report covers office buildings of 50,000 square feet or larger. Sales calculations do not always include portfolio transactions or exchanges with unpublished dollar values. Listing rates are full-service or “full-service equivalent” rates for spaces available as of the reporting period. Download the full report using the prompt above for detailed methodology.

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