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Austin Leads Office Vacancy Surge at 27.9%, Six Markets See 500+ Basis Point Increases

“We are in the early innings of a multi-decade transformation, with the [office] sector still adapting to the post-pandemic world.”That is the view of CommercialEdge, expressed in its January 2025 national office report. The prospects for office in 2025 appear bleak, “and the worst may not yet be in the rearview mirror,” it added.

The report noted a national vacancy rate of 19.8% -- 150 basis points higher than the year before, and 40 basis points higher than the previous month.

Six of the top 25 markets the company covers saw vacancy rates rise by more than 500 basis points in 2024. Worst off was Austin, where it shot up by 690 bps between December 2023 and December 2024 to 27.9%. Other markets with startling increases in vacancy were the Bay Area and Portland (each up 620 bps), San Francisco and Philadelphia (each up 520 bps), and Boston (up 510 bps).

“Any vacancy decreases in the next few years will be driven by a shrinking stock of office space – due to obsolescence or conversion – not by a rapid rise in occupied space,” CommercialEdge predicted.

The highest listing price per square foot was for San Francisco’s Sand Hill Commons ($204), followed by Manhattan’s 101 Park Ave. ($175), the Bay Area’s 245 Lytton Ave. ($147.48), Boston’s Genesis 55 Summer ($140), and Orlando’s Capital Plaza Two ($116.33). The national average full-service equivalent listing rate was $33.11 per square foot, up 26 cents in the month and 4.5% over 2023.

The lowest asking rates nationwide at the end of 2024 were in the Midwest. Detroit ranked as the most affordable at $21.46 per square foot.

The report noted a sharp drop in office space under construction to 54.7 million square feet, 43.6% down from the 97 million square feet recorded in January 2024. The amount of new space delivered – 43.2 million square feet – was the lowest yearly total since 2013.

And in a report probably drafted before the Trump administration ordered all federal workers back to their offices, it did not anticipate return-to-office would become a trend. “It is unlikely any large-scale cultural change will happen soon, especially considering many workers in their 20s have only ever known a remote work environment,” the report said. Investor demand would therefore remain muted, it predicted.

Even if sales volume did increase, it would not be by much. And few additional interest rate cuts to encourage sales were expected in the year ahead.

“We also expect that a significant portion of office transactions will continue to be distressed sales. Billions of dollars in loans are maturing this year, and many loans are for buildings that have struggled to maintain occupancy in recent years,” the report stated.

Reprinted with permission from the Tuesday, 28 January 2025 07:15:04 EST online edition of GlobeSt © 2025 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-256-2472 or reprints@alm.com.