BOSTON– At the beginning of the pandemic, many thought coworking will be the least resilient asset class. But, as treatment and prevention options have become more effective, shared spaces are bridging the gap between office use and work from home setups as hybrid work becomes part of the new work landscape, according to a report from CommercialEdge.
Increased demand, flexibility and cost efficiency are among the reasons why industry’s experts expect further growth in the future, the report added.
Key findings from the report:
- The average U.S. office listing rate stood at $37.75 in July, slipping 2.3% year-over-year
- Up 10 basis points year-over-year, the national vacancy rate stood at 15.1%
- 5 million square feet of new office space was under construction at the end of July
- Year-to-date, the national office sales volume reached $51.9 billion
See below more info the CommercialEdge report:
More than two and a half years into the COVID-19 pandemic, the office sector continues to struggle with high vacancy rates and contracting listing rates. Coworking spaces, however, are quickly rebounding, despite being considered by many to be the first commercial real estate sector to be doomed by the pandemic.
But with office-using business sectors increasingly embracing long-term work-from-home and hybrid models and employers reevaluating their traditional office footprints, coworking and flex spaces are increasingly becoming the answer to companies’ space needs.
WeWork’s occupancy rates have returned to pre-pandemic levels and memberships are at a historic high for the company. Other flex and coworking operators like IWG are also reporting revenue increases across the board.
With coworking spaces in high demand and lower operating costs than traditional office environments, CommercialCafe and CoworkingCafe expect this commercial asset type to grow in prominence in the coming years. This holds especially true when considering that there are currently only about 117.5 million square feet of coworking and flex office space nationwide, with most of the national stock concentrated in just a few markets like Manhattan, Los Angeles, Chicago, Washington, D.C. and Dallas.
For more details on the national construction pipeline and additional office fundamentals, download the full August 2022 report at the bottom of the page.
Charlotte Listing Rate Growth Tops National Rankings for 5th Consecutive Month
Across the top 50 U.S. office markets, the average full-service equivalent listing rate stood at $37.75 in July, up 17 cents month-over-month, but down 2.3% year-over-year. At the same time, the national vacancy rate ticked up 10 basis points both month-over-month as well as year-over-year, stabilizing at 15.1%.
At the market level, Charlotte remained the top performer in price growth for the fifth consecutive month with a 16.8% increase year-over-year that brought its average full-service equivalent listing rate to $33.62 per square foot. That also marked a 17-cent increase over June figures.
Charlotte’s performance is even more notable when considering that its vacancy rate dropped 130 basis points year-over-year, despite a 4.9 million-square-foot infusion of new office space in 2021, fueled by the city’s office-using financial sector. While only 338,000 square feet of new office space came online so far this year, Charlotte currently has 4.3 million square feet of new stock under construction — the equivalent of 5.6% of its existing inventory.
Charlotte was also just one of three markets where listing rates grew by double digits, joined by the life science hubs of San Diego and Boston, which registered listing rate increases of 13.9% and 15.2% year-over-year, respectively.
The Bay Area, Manhattan and Boston Surpass $3 Billion in Office Sales
Year-to-date, office sales have reached $51.9 billion nationwide, of which $8.2 billion were closed in July alone, on par with June’s $8.4 billion sales volume. However, the year-to-date national sales prices slid $7 per square foot month-over-month, posting a $265 per square foot sale price in July.
Investors continue to increasingly reorient towards life science markets like Boston and the Bay Area, where office occupancy rates remain higher due to the in-person nature of many life science jobs.
As a prime example for the attraction posed by life science markets, the Bay Area’s priciest sale this year was the $446 million acquisition of Stanford Research Park by Alexandria Real Estate Equities. That deal commanded a $1,527 per square foot sale price, contributing to the Bay Area’s year-to-date sales volume of $3.07 billion.
The Bay Area was one of three markets where year-to-date sales volumes have now surpassed the $3 billion threshold, joined by Manhattan and Boston, while five additional markets led by Dallas-Fort Worth closed in excess of $2 billion in office sales each.
Boston Office Construction Pipeline Hits 12.3 Million Square Feet
Nationally, there were 149.5 million square feet of office space under construction as of July, amounting to 2.2% of the existing national stock. Projects with shovels in the ground reflected the shifting trends of post-COVID office developments: Only 31% of office projects are being developed in suburban markets. By comparison, 42% of the 28.7 million square feet delivered in the first seven months of 2022 came online in suburban locations.
Planned projects equaled 6.5% of existing stock, ticking up from June’s 6.2%. Of course, uncertainty surrounds how much of this planned stock will actually break ground considering the headwinds faced by the office sector. At the same time, companies in markets with considerable coworking, hybrid and flex space square footage are increasingly reorienting towards this asset type to satisfy shifting office needs.
Life science markets continued to outperform other office markets except for select Sunbelt office hubs like Austin, Nashville and Charlotte, where office projects under development accounted for 9.5%, 6% and 5.6% of local inventory. Traditional life science cities like Boston and San Diego were among the best performing markets in terms of new development too.
While the latter has 4.8 million square feet of office space under construction, equal to 5% of its existing stock, Boston is developing the equivalent of 4.9% of its existing stock for a total office development footprint of 12.3 million square feet. Since the pandemic began, more than 40% of all new Boston projects were life science developments and those that have broken ground since the start of 2021 have a life science share of 55%, not counting projects that will have only a partial life science footprint.
For more insights and market-specific data, check out our full report here: https://www.commercialedge.com/blog/national-office-report/