Remote Work Shapes Office Sector

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To varying degrees, remote work is altering office markets across the nation. U.S. Census data reveals a substantial increase in remote workers, reaching 17.9 percent of the workforce nationally. Tech-focused cities—such as Boulder, Colo., San Francisco and San Jose, Calif.—have the highest shares of remote workers. According to CommercialEdge, markets with more remote workers have experienced notable spikes in vacancy rates.

The national office vacancy rate continued its upward trajectory, clocking in at 17 percent at the end of May, a 30-basis-point increase from the month prior and up 160 basis points from the same period last year. Markets with a strong tech footprint recorded the highest vacancy rates, with Austin (20.7 percent), Denver (20.2 percent), San Francisco (20.0 percent) and Seattle (19.5 percent) leading the way.

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Meanwhile, national full-service equivalent listing rates averaged $38.36 per square foot in May, up 210 basis points year-over-year and 13 cents more than in the previous month. Average in-place rents increased dramatically in San Diego (16.6 percent year-over-year), Philadelphia (8.5 percent), Boston (7.7 percent) and New Jersey (7.3 percent).

The office-using sector added 65,000 new jobs year-over-year in May, a 1.9 percent increase. After surpassing national job growth in the wake of the pandemic, office-using sectors have seen six months of slower expansion. Office job growth has decelerated geographically, impacting once thriving regions such as Texas, Florida, Chicago, Denver and the Twin Cities. In particular, the financial activities and information sectors have suffered notable employment declines.

Life science construction thrives nationwide

The under-construction pipeline had 116.2 million square feet of new office space underway at the end of May, or 1.8 percent of total stock. Despite office projects being canceled or put on hold, the construction of life science properties remains steady. Demand for new lab spaces is robust, as these properties are not affected by remote work and are purpose-built.

Over 120 buildings with life science components are being developed nationwide, primarily in top markets like Boston, San Francisco, the Bay Area and San Diego. As of May, Boston had more than 15 million square feet of office space underway, accounting for 6.3 percent of total stock; San Francisco followed with 7.9 million square feet underway, then the Bay Area (5.3 million square feet) and San Diego with 5 million square feet under construction. Meanwhile, office investment year-to-date in May totaled $11.9 billion.

Read the full CommercialEdge office report.