Is the struggling U.S. office market seeing any relief? The latest numbers from CommercialEdge suggest that it is not.
In its May office report, CommercialEdge reported that the national office vacancy rate was 18.8% in April. That is an increase of 210 basis points on a year-over-year basis.
U.S. office vacancy rates have been on the upswing in nearly every market, but tech markets have been hit the worst, with San Francisco (650 basis point increase over the last 12 months), the Bay Area (400 bps) and Seattle (400 bps) all experiencing significant increases.
Markets with a high concentration of financial jobs, like Dallas (390 bps) and Charlotte (380 bps), have also seen large jumps in the last year. Even lab space centers like Boston (230 bps) and San Diego (370 bps) have seen vacancies rise despite the in-person nature of most work in the life sciences field.
Other numbers highlight the struggles of the U.S. office market, too. Just 83.7 million square feet of office space was under construction as of April, according to CommercialEdge. This pipeline has shrunk by more than 50% in the past 18 months, as buildings have been completed and starts have slowed.
CommercialEdge said that office starts have been nearly nonexistent in the United States in 2024, with just 3.2 million square feet of new space breaking ground through the end of April.
Compare that to 2023, when 44.2 million square feet of office space broke ground, buoyed by the life science and medical office sectors. Now, even development for those uses has dried up.
CommercialEdge does predict that once interest rate cuts begin, developers will slowly return to the office sector. But CommercialEdge also says that it might be years until there is a meaningful uptick in office starts.
This isn’t to say that there hasn’t been any office activity. CommercialEdge reported that a total of $7.5 billion in office transactions have been logged in the United States so far this year, with properties trading at an average of $157 a foot.
CommercialEdge reported, too, that office-using sectors of the labor market lost 6,000 jobs in the month of April, citing numbers from the Bureau of Labor Statistics. The information sector lost 8,000 workers, and professional and business services lost 4,000.
Financial activities were the only office-using sector that grew in April, adding 6,000 workers on the month. Office-using employment has been stagnant during the past year, growing only 0.4% in the past 12 months. The annual growth rate has not topped 1% since last June. The information sector has been the worst performer of the bunch, declining 1.3% over the past 12 months.
