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Avison Young US Office Market Report Q1 2023
Avison Young US Office Market Report Q1 2023
office
market
report
Q1 2023
page 2 U.S. office insights | Q1 2023 Source: AVANT by Avison Young, CoStar, Trepp
U.S. office leasing activity
100M sf
COVID-19
90M sf
80M sf
70M sf
60M sf
50M sf
42 Leasing activity
40M sf
slowed to
30M sf the second-weakest
20M sf amount since 2001,
10M sf -42.2% from 2001 to
0M sf Q1 2020 and -27.5%
from post-COVID
Q1 2001
Q4 2001
Q3 2002
Q2 2003
Q1 2004
Q4 2004
Q3 2005
Q2 2006
Q1 2007
Q4 2007
Q3 2008
Q2 2009
Q1 2010
Q4 2010
Q3 2011
Q2 2012
Q1 2013
Q4 2013
Q3 2014
Q2 2015
Q1 2016
Q4 2016
Q3 2017
Q2 2018
Q1 2019
Q4 2019
Q3 2020
Q2 2021
Q1 2022
Q4 2022
averages.
Note: Avison Young markets only
page 3 U.S. office insights | Q1 2023 Source: AVANT by Avison Young
Post-COVID change in net effective rents
Trophy Class A Class B/C
+28.4%
Manhattan -2.8%
-2.7%
Flight to quality
remains
+3.5%
pronounced,
especially in
San Francisco -22.9%
-29.0%
markets such as
Manhattan (+28.4%)
Washington, D.C.
+1.0%
where new
construction
+2.1%
-3.5%
demand is strong.
$20B 500
$18B 450
$16B 400
$14B 350
$12B 300
According to
$10B 250
Trepp, the cost of
$8B 200
CMBS debt has
$6B 150
increased by 40-
$4B 100
60% since 2021,
$2B 50
putting $36.3B of
$0B 0
fixed-rate loans at
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033+
risk through 2025.
2018
2019
2020
2021
2022
2023
2Q16
4Q16
2Q17
4Q17
2Q18
4Q18
2Q19
4Q19
2Q20
4Q20
2Q21
4Q21
2Q22
4Q22
2Q16
4Q16
2Q17
4Q17
2Q18
4Q18
2Q19
4Q19
2Q20
4Q20
2Q21
4Q21
2Q22
4Q22
Availability (msf) Vacancy Investment sales
Direct Sublet Sale volume (millions) Sale price psf
Direct Sublet
1,400 20%
$400 $345.18 $100B
1,200 15.1%
$270.32
15% $80B
1,000 $300
800 $60B
10%
600 $200
$40B
400 5%
2.1% $100
$20B
200
0 0% $0 $0B
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2Q16
4Q16
2Q17
4Q17
2Q18
4Q18
2Q19
4Q19
2Q20
4Q20
2Q21
4Q21
2Q22
4Q22
2Q16
4Q16
2Q17
4Q17
2Q18
4Q18
2Q19
4Q19
2Q20
4Q20
2Q21
4Q21
2Q22
4Q22
1Q23
page 6 U.S. office insights | Q1 2023 Source: AVANT by Avison Young, CoStar, RCA
Non-remote job postings, 3/2022-1/2023
Retail -3.0%
Energy and utilities -5.4%
Education -9.2%
Healthcare -10.7%
Nonprofit and association -13.6%
Wholesalers -13.8%
Engineering, architecture and construction -14.1%
Aerospace and defense -16.7%
Food and beverage production -16.8%
Auto, auto parts and tires -19.6%
Industrial equipment and machinery -19.7%
Basic materials and chemicals -21.1% Total job postings
declined by 22.1%
Consulting, research, accounting and recruiting -21.2%
Household and consumer products -21.4%
Legal services
Life sciences
-25.1%
-26.2%
since March 2022,
Other -28.7% impacted by equity
Hospitality & leisure
Banking, finance, insurance and real estate
-31.5%
-31.6%
and liquidity issues
Tech -33.4% in banking, tech
and media.
Media, PR, telecom and entertainment -40.9%
Logistics distribution and parcel delivery -43.9%
page 7 U.S. office insights | Q1 2023 Source: AVANT by Avison Young, Emsi
Banking share of major markets/sectors
U.S. office classes Gateway markets
U.S. Trophy
properties
27.5%
U.S. Class A
properties
11.0%
Boston 31.9%
1,200 msf
1,000 msf
Sublease
800 msf
availabilities
600 msf
increased to a new
record in Q1 2023,
400 msf more than doubling
from Q1 2020 levels
200 msf
as tenants continue
cost containment
0 msf
Q1 2018 Q3 2018 Q1 2019 Q3 2019 Q1 2020 Q3 2020 Q1 2021 Q3 2021 Q1 2022 Q3 2022 Q1 2023 efforts.
page 9 U.S. office insights | Q1 2023 Source: AVANT by Avison Young, CoStar
Concessions as a share of lease term
2018-3/2020 4/2020-present
35%
30%
25%
Tenant leverage has
20% accelerated in U.S.
gateway markets,
15%
with landlords
10% offering more
generous free rent
5%
periods and tenant
0%
improvement
Boston Chicago Los Angeles Manhattan San Francisco Washington, DC allowances.
Note: Direct relocations only for 20,000+ sf leases with
>7-year lease terms executed in Boston, Chicago,
Los Angeles, Manhattan and San Francisco CBDs.
page 10 U.S. office insights | Q1 2023 Source: AVANT by Avison Young, CoStar
Vacancy rates by LEED certification
Not LEED Certified Certified Silver Gold Platinum
20%
18%
16%
Tenants have
14%
refocused on
12% sustainability,
10% especially in a
8% supply-rich market.
6% LEED Platinum
4%
offices have
2%
consistently
0%
outperformed peer
Q1 2020 Q1 2021 Q1 2022 Q1 2023 properties.
Note: Trophy and Class A properties only. Includes
direct and sublease vacant spaces.
page 11 U.S. office insights | Q1 2023 Source: AVANT by Avison Young, CoStar
Commute times vs. change in availability
U.S. office markets Trendline
40 min
38 min
Manhattan
Washington, DC
36 min
San Francisco
Boston Atlanta
34 min
There is a limited
Chicago
Average commute time
Los Angeles
32 min Houston
correlation of .16
Seattle
Miami Philadelphia
between
30 min
Silicon Valley
Dallas - Ft Worth Denver
28 min
Austin
commutability and
26 min
office performance;
24 min
Salt Lake City office fundamentals
22 min
Louisville Minneapolis-St.Paul
have been
20 min influenced by other
-10% -5% 0% 5% 10%
Post-COVID change in total availability rate
15% 20% 25%
factors.
Note: Availability rate includes direct and sublet spaces
page 12 U.S. office insights | Q1 2023 Source: AVANT by Avison Young, CoStar, Census
Office investment sales dollar volume
Q1 Q2-Q4
$100B
$90B
$80B
$70B
$60B
The office market
$50B
has encountered
$40B mounting liquidity
$30B issues, with 2023
$20B annual volume on
$10B pace to match the
$0B 2009 to 2010
average.
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
page 13 U.S. office insights | Q1 2023 Source: AVANT by Avison Young, RCA
U.S. office cap rates vs. asset pricing
9% $ 400
8%
7.44% $ 350
7%
$ 300
6%
$270 $ 250
5%
$ 200
4%
3% 3.48%
$ 150 Office cap rates
$ 100 have widened by
107bp year-over-
2%
year, contributing
1% $ 50
0% $0
to offices being
Jan-07
Jan-14
Jan-21
Feb-11
Apr-12
Feb-18
Apr-19
Nov-19
Aug-07
Oct-08
Jul-10
Nov-12
Oct-22
Mar-08
May-09
Sep-11
Jun-13
Aug-14
Oct-15
Jul-17
Mar-15
May-16
Sep-18
Jun-20
Aug-21
Mar-22
Dec-09
Dec-16
devalued by 15.9%.
Source: AVANT by Avison Young, RCA, U.S. Department
page 14 U.S. office insights | Q1 2023 of the Treasury, Federal Reserve Bank of St. Louis
U.S. office market stats by market
Net absorption as a %
Market Existing Under development Direct asking
Deliveries sf (YTD) Direct availability Sublet availability Total availability of inventory
inventory sf sf rent psf FS
(Q1 2023)
Dallas - Ft Worth 229,183,868 955,970 6,347,557 25.8% 4.2% 29.9% (0.9%) $33.21
East Bay - Oakland 72,112,163 0 34,905 17.9% 4.6% 22.3% (0.4%) $38.88
page 15 U.S. office insights | Q1 2023 Source: AVANT by Avison Young, CoStar
U.S. office market stats by market
Net absorption as a %
Market Existing Under development Direct asking
Deliveries sf (YTD) Direct availability Sublet availability Total availability of inventory
inventory sf sf rent psf FS
(Q1 2023)
Las Vegas 33,945,782 100,184 370,000 13.3% 1.6% 14.9% (0.9%) $28.00
Los Angeles 312,689,590 701,562 3,088,266 18.6% 3.5% 22.0% (0.6%) $43.33
New York City Outer Boroughs 83,978,128 425,982 1,479,327 16.1% 2.0% 18.2% 0.9% $42.23
page 16 U.S. office insights | Q1 2023 Source: AVANT by Avison Young, CoStar
U.S. office market stats by market
Net absorption as a %
Market Existing Under development Direct asking
Deliveries sf (YTD) Direct availability Sublet availability Total availability of inventory
inventory sf sf rent psf FS
(Q1 2023)
San Francisco 91,372,033 300,000 404,618 24.4% 9.2% 33.2% (0.9%) $72.51
San Francisco Peninsula 39,398,766 154,000 810,450 11.9% 4.5% 15.9% 0.0% $66.81
Silicon Valley 111,852,560 1,300,199 6,772,679 15.4% 5.1% 20.1% 0.7% $52.63
West Palm Beach 28,245,873 0 765,010 14.6% 2.6% 17.1% (0.6%) $49.05
page 17 U.S. office insights | Q1 2023 Source: AVANT by Avison Young, CoStar
U.S. office market stats by class
Net absorption as a %
Existing Under development Direct asking
Deliveries sf (YTD) Direct availability Sublet availability Total availability of inventory
inventory sf sf rent psf FS
(Q1 2023)
page 18 U.S. office insights | Q1 2023 Source: AVANT by Avison Young, CoStar
Office insights
glossary of terms
Craig Leibowitz
Director, Innovation & Insight Advisory, U.S.
craig.leibowitz@avisonyoung.com
© 2023 Avison Young. All rights reserved. E. & O.E.: The information contained herein was obtained from
sources which we deem reliable and, while thought to be correct, is not guaranteed by Avison Young.