With a market size of nearly $900bn, the United States has one of the world’s largest commercial real estate markets, coupled with some of the most desirable business locations to match. This post serves as the first part of our examination into the US market’s performance based on data from Q4 2020 and Q1 2021.
Commercial real estate was one of the hardest hit sectors following the coronavirus outbreak in 2020. The pandemic and the measures taken to curb its spread brought significant changes to office-based workplaces, driving a sharp and sudden increase in remote work practices. The most immediate consequence of this shift was a softening in rental activity due to the decreased need for physical office space in the short-term. As a result, 2020 ended with a marked decline in take-up volume and an increase in office vacancy rates across the nation.
The United States office rental market entered the new year in a scenario marked by declining rental rates and compromised fundamentals. As we move further into 2021, these trends are likely to remain in place and some markets may begin to feel the full impact of the economic crisis, whereas others will prove more resilient.
The United States office market is characterized by its wide range of properties, ranging from affordable shared spaces to expensive trophy offices in some of the world’s most desirable business locations. In mid-2020, average gross rates for offices nationwide stood at $35 per square foot with the priciest offices located in New York and California. Within these states, the sub-markets commanding the highest rates are:
Average asking rates in other prime office markets are as follows:
An updated version of this post can be found by clicking here.
The United States is home to one of the world’s largest commercial real estate markets, with an estimated worth of approximately $950bn. In terms of size, industrial space is the largest sub-market with 21bn square feet, followed by retail with 13bn, and offices, which account for 11bn.
In Q2 2020, the average price per square foot for US offices was just over $35. Retail averaged out to $18.09 / square foot, and industrial space came in at just under $8 / square foot. However, there are significant variations in average prices based on location and real estate class. Here is a summary of average commercial rates in key USA cities:
New York City is home to more than 500 million square feet of office space, which make it one of the world’s largest office markets. While that seems a large amount, space shortages are a reality, and not only in terms of the offices available. Rising rental values mean that many New York companies are choosing to downsize or to make changes to their office layout to maximize space and cut costs. Nowadays, it is not uncommon for companies to move to office premises that are up to 25 percent smaller, yet the amount of people sharing that space remains the same.
Another way in which the amount of office space allocated to each staff member is getting scarcer is because of current trends towards open plan offices and collaborative spaces. The concept of the sharing economy has extended into office design and space allocation, with shared workspaces becoming increasingly more common, which means individual desks are being replaced by large long tables. In fact, New York leads the nation’s provision of shared office space, and even in traditional offices there have been changes in the desk space – meeting or collaborative space ratio, with the balance switching towards the latter.
Bolstered by a robust economic performance, the office market in Washington DC delivered a fine performance throughout 2015. Unemployment levels in the DC metropolitan area were at their lowest since 2008, reaching figures well below the US national average (4.3 per cent vs 5 per cent). These conditions have helped shape a real estate market that is predominantly favourable to landlords, as the following trends demonstrate:
Washington DC Office Market: 2015 Key Facts & Figures
During 2015, vacancy rates for all types of office space in Washington went down to 10.5 per cent, pretty much in line with the city’s historical average of 10.7 per cent. At the same time, net absorption levels increased by a staggering 185 per cent, going from 198,000 square feet in 2014 to 398,000 by December 2015. Nearly half of the transactions involved office stock in Washington’s CBD, which clearly outperformed all other sub-markets. This is attributed to the ongoing influx of new tenants relocating from secondary office locations into the CBD. This trend began to be evident in 2014 and has been solidified over the past 12 months. Read the rest of this entry »
An in depth look at how the Manhattan office space market has fared in 2015 and forecasts for this coming year.
Manhattan Office Market Overview of 2015
Over the past 12 months, federal economic policy has been focusing on expansion, driving an increase in employment rates, especially as far as office-based employment is concerned. This type of employment grew by 2.6 per cent in just 1 year, and prompted a considerable increase in demand led by occupiers in the Manhattan financial services sector. In certain Manhattan sub-markets (such as in Midtown South), strong demand from tenants in the TAMI sector (technology, advertising, media, and information) was also evident.
At the end of 2015, total office stock in Manhattan was just under 395 million square feet, of which 28 million were vacant. Total transaction volume amounted to more than 28 million square feet, one of the highest figures of the past 10 years. However, there was a slight decline in transaction volumes in downtown Manhattan, where transactions mostly involved small and medium-sized office properties.
Manhattan Office Market: Key Facts & Figures
During 2015, office vacancy rates in Manhattan went down from 9.3 per cent to 8.5 per cent. This decrease equals to 90 basis points on a year-on-year basis, and brings vacancy rates closer to Manhattan’s historical average of 8.9 per cent. In Midtown South, vacancy rates were markedly lower at 6.2 per cent, whereas in downtown Manhattan they went down by 30 basis points to 9.4 per cent. Read the rest of this entry »
Centered on the north-central region of the country, the Midwest United States includes 12 states including Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota and Wisconsin. Although major urban centers such as Chicago are known around the world as key economic drivers, the Midwest is also home to several smaller cities that provide promising conditions for new businesses. WalletHub’s 2015 ranking of the best cities to start of a business in the United States included six Midwestern cities in the top 20. The ranking used a number of metrics, from the five-year survival rate of businesses to the affordability of office space.
Springfield, Missouri
Springfield, Missouri ranked as the best Midwestern city to start of business in the United States, according to the 2015 study. The city also placed first nationally in terms of access to resources, including financing and affordable office space. Known as the Queen City of the Ozarks and the Birthplace of Route 66, Springfield is home to the Missouri State University and Drury University. The third largest city in Missouri is the economic hub of an area that spans 27 counties in Missouri and neighboring Arkansas and is home to some 1 million people. The economy is based on health care, manufacturing, retail, education and tourism. The city has also been recognized for its high quality of life, and in 2008 it was among the best communities for young people by the America’s Promise Alliance and relocating families by Worldwide ERC.
Sioux Falls, South Dakota
The same ranking found that Sioux Falls was the sixth best city to start a business in the US. With a growing population, the city also ranked second in terms of the best business environment in the United States. It was also named as the next big boom town by The Atlantic in 2013. The largest city in South Dakota, Sioux Falls is a diverse economic center focused on financial services, health care and retail. Sitting on the crossroads of interstates 90 and 29, the city is within a day’s drive from many major cities in the Midwest. The lack of a state corporate tax has helped attract a number of financial companies to Sioux Falls, including Wells Fargo and Citigroup. Read the rest of this entry »
According to a recent Cushman and Wakefield report, the office market in the Lone Star state is robust and has been marked by a consistently high demand for Class A space and an expanding occupier base. This is particularly true of the Dallas-Fort Worth area, where a thriving job market has prompted several corporations to relocate to larger premises.
Towards the end of 2014, average vacancy rates in this area had dropped from 17.9 per cent to 16.6 per cent, thus reaching their lowest levels since 2010. By the end of Q4 2014, more than 13.8 million square feet had been leased or sold in the Dallas-Fort Worth area.
Strong demand in this area is also reflected in the speculative development pipeline, where 65 per cent of the more than 6 million square feet of office space under construction has already been pre-leased.
The city of San Francisco is one of the top business hubs in the Americas. The local business community is among the most vibrant and successful at global level, partly due to the huge pool of talent available in the city and its surrounding areas. A large number of Fortune 500 companies are based in the area, and business opportunities exist for enterprises operating in a wide range of sectors, from aerospace to health care and including electronics, consumer goods, retail, and telecommunications.
The undeniable appeal of San Francisco as a business location has attracted hundreds of prospective entrepreneurs to the area. If you are considering setting up a business in San Francisco, take a look at our detailed guide to commercial property in this thriving Californian city.
Key Trends in the San Francisco CRE Market
For the past two years, the local commercial property market in San Francisco has shown a variety of healthy indicators.
Read the rest of this entry »
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