Tough times? The U.S. office sector is still struggling through them, according to the latest research from CommercialEdge. A key measure of these struggles: The listing price of U.S. office properties continued to fall during the first weeks of 2024.
In its February National Office Report, CommercialEdge reported that the average U.S. office listing rate stood at $37.35 a square foot in January, a dip of 1.8% when compared to the same month a year earlier.
And that’s just one bit of bad news from the report. CommercialEdge also reported that the national office vacancy rate rose to 18% in January, up 130 basis points from the same month in 2023.
The office real estate sector is currently facing steep discounts in asset values due to post-pandemic effects and rising interest rates, with average property values down by at least 25%, according to the latest U.S. office market report.
The downward trend in office valuation is more pronounced in older and less ideally located buildings, CommercialEdge said. More than 20% of office properties sold since the start of 2023 have fetched lower prices than their previous sales. CBD offices have been hit the hardest by the work-from-home changes bought by the pandemic, with 35% of properties trading at a lower sale price last year.
A good example? In Washington, D.C., a 13-story building with ground-floor retail sold for $18.2 million in 2023, down 70% from its 2017 price tag of $61.8 million. At the same time, only 21% of properties sold in the suburbs recorded a decline in value, Commercial Edge said.
Unfortunately, this doesn’t look to be a trend that will reverse itself anytime soon.
“The lack of transactional volume makes comp identification more difficult, but lower-end buildings not in prime locations are suffering and we expect that trend to only accelerate,” said Peter Kolaczynski, director with CommercialEdge, in a written statement.
What’s happening in the Midwest office market? CommercialEdge said that in the Detroit market, the average office property listed at $22 a square foot in January, which is actually up 1.90% from the same month a year earlier. Unfortunately, Detoit’s office sector is also dealing with a high office vacancy rate of 25.40%, up 550 basis points from a year ago.
In the Minneapolis/St. Paul market, the average office property listed for $26 a square foot in January, up 0.70% when compared to the same month a year earlier. The Twin Cities’ office vacancy rate stood at 16.90% in January, up 190 basis points from a year earlier.
In Chicago, the average office property listed for $28 a square foot in the first month of this year, down 0.30% from a year ago. The office vacancy rate in the Chicago area came in at 18.10% in January, down 130 basis points from January of 2023.
In Austin, office properties listed for an average of $41 a square foot in January, down 0.40% from a year earlier. This market’s office vacancy rate stood at 22% in January, up 290 basis points from 12 months ago.
