Office occupancy continued to increase as of February, with 84% of 390 metro areas experiencing an increase in occupancy.1 Since the third quarter of 2021, when the office market turned a corner, 30 million square feet (msf) of office space has been absorbed, or a rate of 10 msf per quarter. That is on par with pre-pandemic levels. However, there is still about 110 msf of office space that has been left vacant since the pandemic started in 2020 Q3, and it will take 11 quarters (or through the end of 2024) to reabsorb this office space.
Boston Leads Gains in Office Occupancy in Past 12 Months
Over the past 12 months, office occupancy rose in 84% of 390 markets tracked by CoStar. In short, the office market recovery is broad-based, except in the major metro markets2 of New York (-6.4 msf), Chicago (-5.8 msf), Washington, D.C. (-3.9 msf), and Los Angeles (-1.1 msf). Of the six major commercial metro areas, only Boston and San Francisco had net positive absorption in the past 12 months. In fact, Boston had the highest net absorption of office space over the past 12 months as of February 23 (3.75 million), driven by life science companies.3
Worth noting is that occupancy is increasing in major tech metro areas, led by San Jose (3.5 msf), San Diego (1.6 msf), San Francisco (0.75 msf), and Seattle (0.28 msf). The rising occupancy in these tech metro areas indicates that tech companies are contributing to the demand for office space, even as nationally, 45% of mathematical and computer workers work from home for at least some part of the time, according to the U.S. Bureau of Labor Statistics supplemental survey.
The South and West region metros remain the top magnets for office occupiers, led by Austin (3.37 msf), Dallas (3.36 msf), San Jose (3.1 msf), Atlanta (2.6 msf), and Houston (2.1 msf).
Office Asking Rents Are Rising in 98% of Markets
Office asking rents are rising in 98% of 390 office markets, except in nine markets that include the major metro areas of New York (-0.9%), San Francisco (-1.8%), and Washington, D.C. (-0.4%), as well as Houston (-0.1%) and Hartford (-0.5%).
Nationally, office asking rents are up just 0.7%, but that is because the major metro markets are weighing down the average rent growth and masking the strong rent growth across other markets. For example, among the top five metro areas with a population of at least 1 million with the highest asking rent growth, asking rents are up at 4% or more in the Palm Beach metro area (6.2%), Providence (5%), Miami (4.9%), Las Vegas (4.3%), and Tucson (4.1%).
However, due to the large decline in vacant office space in the major metro markets, office asking rents are likely to grow at a modest pace (1% to 2%) in 2022 through 2024 given the elevated vacancy rate of 12.3% (up from 9.7% in 2020 Q1), and with 140 msf of office space under construction, that will add office space that is equivalent to 1.7% of the current inventory of office space.
1 According to CoStar market data
2 Based on historical sales deal size, the six major commercial metro areas prior to the pandemic were New York, Chicago, Boston, Washington, D.C., Los Angeles, and San Francisco
3 Boston Tops the Nation in Life Sciences Space Demand, Capital Investment and New Construction in Progress, https://bostonrealestatetimes.com/boston-tops-the-nation-in-life-sciences-space-demand-capital-investment-and-new-construction-in-progress/