Investor appetite for U.S. office assets increases, says Yardi Matrix

Investor appetite for U.S. office assets increases, says Yardi Matrix

Prices for prime U.S. office assets have risen sharply this year. Office property transactions, spurred since summer by lower interest rates, totaled $74 billion through October, according to a new report from Yardi® Matrix.

The average U.S. office asking rate increased 2.0% year-over-year in October to $37.73. The average national vacancy rate increased 40 basis points from the previous month, to 13.7%.

Markets where year-over-year listing rate growth was the highest were San Francisco (27.6%), Tampa (24.5%), the Bay Area (10.7%) and Manhattan (10.5%). These were also the top four metros for same-store listing rate growth, with San Francisco leading the way at 13.5%, followed by Manhattan (8.3%), the Bay Area (8.1%) and Tampa (5.7%).

The most notable aspect of this year’s sales activity is the spike in price per square foot in prime U.S. office assets. CBD buildings have traded at an average of $428.70 per square foot this year, a 24.6% increase from 2018. Per-square-foot prices in CBDs only increased 24.4% between 2012 and 2018.

READ ALSO : Average U.S. asking rents for office space rise 1.7% in H1 2019

Similarly, buildings rated as A+ and A have increased 12.1% this year to $370.71 per square foot. “This rate of increase in CBD prices hasn’t been seen since the years before the Great Recession,” said in the report.

Between 2006 and 2008, the price per square foot for CBD office buildings increased 53.8%, from $258.88 to $398.25. ”While 2019 is not the same as 2008, most notably due to lower-leverage transactions, the rapid increase in pricing is a trend we will closely monitor,” said in the report.

59.2 million square feet of office space was delivered nationally through the end of October, with another 170.1 million square feet currently under construction.

Demand for office space remains strong, with employment in office-using sectors increasing by 1.7% over the past 12 months. One in three jobs added in the 12 months ending in September were in office-using sectors.

View  national office report for November 2019.