Main US Office Markets Continue To Languish

USA – A report from the National Association of Realtors (NAR) shows that the state of the country’s office property market is like two diverging paths during the fourth quarter, reported GlobeSt on Thursday evening (16 December, SGT).

While almost all office markets across the United States recorded rental growth in Q4, the office markets of 13 metro areas continue to lie in a dismal state, including the major office markets of New York, Chicago, San Francisco, Los Angeles, and Washington, D.C.

NAR said primary office markets that make up most of the office footprint continue to record rental drops and falling occupancy. Conversely, secondary and tertiary office markets are witnessing increasing occupancy and rental growth.

In Q4 2021, signed office leases across the country declined to 57 million sq ft, which is 36 percent and 11 percent lower on a quarterly and an annual basis respectively. Before the COVID-19 pandemic, overall signed office leases ranged between 100 million sq ft to 120 million sq ft per quarter.

During the period under review, office occupancy declined by 12.6 million sq ft after it increased by 5.7 million sq ft during the third quarter. This pushed up the total net decline in occupancy since the 2nd quarter of 2020 to 145 million sq ft, based on NAR’s analysis of CoStar statistics.

Of the 390 markets monitored by NAR, 229 or 59 percent out of 390 markets have positive net absorption in the last 12 months as of December 2021. But while office occupancy climbed in Q3 2021, it fell again in San Francisco (-4.5 million sq ft) and New York (-11.7 million sq ft) during the 4th quarter.

Still, the rebound in office occupancy appears to be more solid in Miami, Houston, Dallas, Houston, and San Jose. But secondary markets such as Seattle, Denver, and Atlanta saw a decline in office occupancy in Q4 2021 after office absorption increased during the prior quarter.

As of Q4 2021, only 13 out of 390 markets recorded lower average asking rent compared to one year ago. These include Chicago (-0.1 percent), Washington DC (-0.7 percent), Orange County (-0.9 percent), New York (-1.8 percent), and San Francisco (-4.0 percent).

Moving forward, NAR expects overall office vacancy to increase from 11 percent currently to 13 percent next year, as the Omicron variant may impact demand for office space. As for office rents, it is expected to edge up by 1 percent to 2 percent in the major office markets like New York, Chicago, San Francisco, Los Angeles, and Washington, DC.