(Editor’s note: This article is adapted from a blog written by Ioana Neamt on Commercial Cafe. For more information, please visit: www.CommercialCafe.com)
The U.S. office market is one of the most expensive in the world, and a top destination for national and offshore investors alike. It’s no wonder then that office assets in the States fetch exorbitant prices and investors continue to pump capital into developing bigger and better office buildings.
With the help of Yardi Matrix and PropertyShark data, we looked at how the U.S. office scene evolved over the past decade, and which were the markets that stood out in terms of new office supply. We took into account office spaces within buildings larger than 50,000 square feet–buildings that are primarily used for office purposes (see ‘Methodology’). We ended up with a list of the top 50 metros for new office development. Check out some of our findings below:
US Office Supply Market Recovers After 2011 Slump
Back in 2007, the U.S. real estate market was in full swing and prices reached their highest peak, fueling construction across all sectors. There was no shortage of office construction in the U.S. at the time, and the market recorded its best years in 2007 and 2008. After that, office development started to hit the brakes and followed a downward path for three years hitting a 10-year low in 2011, with less than 25 million square feet of office space added. Yet the market started to slowly get back on track the very next year, and though it has yet to reach the levels recorded before the recession, it seems to have stabilized at a more sustainable level.
2015 proved to be the best year for new office construction in the U.S. following the 2011 slump, with close to 56 million square feet delivered, and 2016 followed the same trend. The current year looks even more promising, with nearly 35 million square feet of new office space delivered through June 2017. It remains to be seen whether 2017 will end on a high note, surpassing the levels of the previous two years.
The Tri-State area added the largest amount of new office space over the past ten years, with 38.2 million square feet of new construction delivered. That’s no surprise, as metropolitan New York is the largest and most desirable destination for real estate development in the country.
The second most active market for new office supply was the Houston-The Woodlands-Sugar Land metro, adding 38.1 million square feet of office space since 2007. As the only major city in the U.S. with no zoning laws, Houston–and the area surrounding it–has been a constant and popular target for commercial real estate development. Furthermore, being home to a plethora of oil and gas companies, the metro’s office sector was the second-most attractive market for office developers, after New York.
Coming in third on our list is the Washington-Arlington-Alexandria metro, which added 37.1 million square feet of office space over the past decade. The metro boasts a healthy office sector, boosted by the presence of numerous governmental entities based there. The only other metro to add in excess of 20 million square feet of office space in the last decade is the Dallas-Fort Worth-Arlington metro, with 26.5 million square feet delivered. Closing the top 10 is Los Angeles-Long Beach-Anaheim, boasting 17.1 million square feet of new office space delivered.
Interestingly enough, though the New York metro added the highest amount of office space, five other metros surpassed it in terms of numbers of new buildings completed: Washington-Arlington-Alexandria (190 new office buildings), Houston-The Woodlands-Sugar Land (170), Phoenix-Mesa-Scottsdale (140), Los Angeles-Long Beach-Anaheim (130) and Dallas-Fort Worth-Arlington (129). By comparison, the New York-Newark-Jersey City metro added 106 new office buildings since 2007.
The 10 Least Attractive Metros for Office Construction
Find all the top 50 metros for U.S. office supply on the map below:
Top 10 Cities for Office Development
Our analysis shows that New York continues to reign over all the other metros when it comes to new office construction. However, if we narrow our focus down to city level, the Big Apple takes a backseat to Houston. The Space City has added 123 new buildings totaling close to 32 million square feet of office space over the last 10 years. The largest new office project to come online in the city since 2007 is the Mid Campus Building 1 within the MD Anderson Cancer Center, incorporating 1.4 million square feet of office space. The city is a magnet for office investment, attractive to developers due to its lack of zoning laws and the large variety of oil and gas companies based there.
New York City comes in second, with 56 buildings and 27.9 million square feet of new office space (our analysis included three out of the five boroughs: Manhattan, Brooklyn and Queens–see ‘Methodology’). The biggest office development of the past 10 years took shape in Brooklyn, with the delivery of Industry City at Bush Terminal. The adaptive reuse project was converted from industrial use to 6.5 million square feet of office space in 2013, though a completion date for the final cosmetic touches has not been set.
Washington, D.C., also added a solid amount of office space over the past decade. A total of 66 new office buildings were delivered to the market, encompassing over 16 million square feet. The largest project of the last 10 years came online in 2010, with the completion of Two Constitution Square. The Class A NoMa project incorporates 584,088 square feet of office space and is owned by Northwestern Mutual Real Estate Investors.
Completing the top five target cities for office development are Seattle, which added 14 million square feet of new office space since 2007, and Chicago, which added 11.6 million square feet. The largest project to take shape in Seattle was Rufus 2.0 – Block 19, featuring 1.1 million square feet of office space, while Chicago welcomed 300 North LaSalle in 2008, totaling 1.2 million square feet of office space.
The Largest New Office Deliveries of the Decade
Industry City at Bush Terminal in Brooklyn was the largest new office development to come online over the past 10 years. The 6.5-million-square-foot adaptive reuse project was once the largest multi-tenant industrial property in the U.S. A 10-year, $1 billion redevelopment initiative was unveiled in 2011, and in 2013, the Bush Terminal complex was officially converted to office use.
The second-largest office delivery was One World Trade Center in New York City. Completed in 2014, the 104-story tower owned by The Durst Organization incorporates 2.9 million square feet of office space and is currently the tallest building in the Western Hemisphere. In fact, the five largest office projects completed in the last 10 years are all located in New York City. One Bryant Park, 200 West Street and 4 World Trade Center complete the top five list.
The Toyota Headquarters at Legacy West in Plano, Texas was the largest office delivery of the decade outside of New York City. Located at 6565 Headquarters Drive, Toyota’s new home features 2.1 million square feet of office space and was completed in 2017. Check out the top 10 list below: