CommercialEdge just released its October national office report, analyzing the U.S. office market’s performance through September 2021. While there has been plenty of uncertainty around how remote work will continue in the post-pandemic world, tech giants have signaled that offices will play a significant role in their future through the purchase, construction and leasing of office space.
Google recently announced it would be exercising its option to purchase St. John’s Station in Hudson Yards, a $2.1 billion acquisition of a building that will anchor Google’s Hudson Yards Campus. Amazon has been moving forward with the construction of its second headquarters in Northern Virginia, estimated to cost $2.5 billion and accommodate 25,000 employees. Across the country, Apple has paid $450 million for a trio of buildings to expand its office footprint in Cupertino, Calif. This is only a few months after signing a lease to occupy 700,000 square feet at Pathline Park in Sunnyvale.
Large purchases of office assets may not be entirely motivated by BigTech’s commitment to offices. Many companies—especially large, profitable tech firms—have been hoarding cash reserves throughout the pandemic. With interest rates near historic lows, purchasing commercial real estate is one of the few avenues for these firms to spend cash that is sitting around. Nonetheless, on balance, these moves should be seen as a bet by these tech giants on the future of the physical office.
Key takeaways:
- The national office asking rents inched up 1.2% to $38.62 per sq. ft. in September.
- The national vacancy rate decreased 50 basis points to 14.9% across top office markets.
- Transactions closed totaled nearly $50 billion by the end of September.
- Office-using employment sectors grew 4.2% Y-o-Y.
- Nationally, 158.2 million square feet of new office stock is currently under construction.
Denver’s New Supply Pipeline Dries Up
The national pipeline has shrunk over the course of the pandemic, and with only 36.2 million square feet of new starts this year, this trend is anticipated to continue. By comparison, there were 87.2 million square feet of new office starts in 2019.
Since the beginning of 2017, 11.7 million square feet have been delivered in the Mile High City, representing 7.3% of stock. Of that, 2.7 million square feet have been delivered this year, driven by large properties completed in the CBD and LoDo submarkets. Now, however, the market’s office boom appears to be over with, as less than a million square feet is currently under construction, representing just 0.6% of stock.
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