United States Commercial Property Prices Per Square Foot
The United States is home to one of the world’s largest commercial real estate markets, with an estimated revenue worth of approximately $1.2tr. In terms of size, industrial space is the largest sub-market with 21.7bn square feet, followed by retail with 14bn, and offices, which account for 11.8bn.
In Q1 2023, the average price per square foot for US offices was just over $38. 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: Average gross rates for metro New York offices are $77 / sq ft / year. Industrial space averages $19 / sq ft / year.
- Los Angeles: $44 / sq ft / year for offices in the metropolitan area and $11 / sq ft / year for industrial premises.
- Miami: In the same range as Los Angeles, at $46 / sq ft / year for offices and slightly lower for industrial space ($8 / sq ft / year).
- Boston: $38/ sq ft / year for metro offices, rising to $80 in Cambridge. Industrial properties average $10 / sq ft / year.
- Philadelphia: $32 / sq ft / year for city center offices, $27 for suburban space, and $6 / sq ft / year for industrial properties.
- Atlanta: Slightly under $30 / sq ft / year for offices with a rate of $35 in Downtown Atlanta. Industrial space is charged at an average of $5 / sq ft / year.
- Chicago: Approximately $33 / sq ft / year for office space, rising to averages above $40 in The Loop. Industrial premises average $6 / sq ft / year.
- Dallas and other urban centers in Texas: between $25 and $30 / sq ft / year, whereas industrial rates are below $5.
How to Calculate Price Per Square Foot in the USA
In the majority of markets, prices are calculated on an annual basis. However, there are some exceptions to this, such as the state of California in which they are quoted monthly by default. To calculate base rates, landlords often consider the type of lease taken.
There are several lease structures, each with different inclusions and exclusions, which affect the final calculation. In gross leases (often compared to full-service leases) the landlord is responsible for covering most operating expenses, which are then passed to tenants in the form of a load factor and charged as an additional percentage. The opposite example would be a triple net lease (NNN), in which the tenant covers most operational expenses. The type of lease that is ultimately chosen affects base rent, in addition to the landlord and market conditions such as demand and vacancy rates.
Per square foot rates take the above into consideration to determine the property’s asking sale price. Once this figure is obtained, it is divided by the property’s square footage to obtain the per square foot rate.
How COVID-19 has Impacted Price Per Square Foot
In April 2020, the slowdown in commercial activity caused by COVID-19 restrictions caused a moderate price drop of between half a percentage point and 1%. By Fall, the Green Street Commercial Property Price Index was 10% below pre-pandemic indicators, with an even sharper decline for commercial properties in shopping malls and hotels.
Overall, retail was the most affected sub-market. In some areas, prices dropped to pre-2011 levels, even in resilient locations like New York and especially in areas that rely on tourism to boost footfall, such as Miami and Las Vegas.
Now in 2023, the United States commercial property market continues to face altered market dynamics as a result of COVID-19. These changes mainly relate to new employee expectations regarding flexibility and increased demand for shared and non-traditional workspace. Occupancy rates for industrial and retail spaces now sit higher than they were pre-pandemic, however, office spaces lag behind at 88% occupancy as at end 2022 (3% lower than 2019).
Despite lower occupancy levels, rental prices have seen positive growth, with office space rental rates growing by 1.2% from Q3 2021 to Q3 2022, though now stand at 1.1% growth YOY in Q1 2023. The slight recent decrease in growth rate is likely due to inflation and concerns of a potential recession.