Since the Industrial Revolution, office spaces have become synonymous with the working class. We even have movies called “Office Space” and a long-running series about “The Office.” (We’d like to see Hollywood do that with “The Industrial.”)
But as the 21st century continues to develop, the office as we know it may drastically change.
If you find it challenging to stay ahead of trends in office real estate, we can help. Here are three numbers that answer all your questions about office real estate right now.
How Big is the U.S. Office Real Estate Market?
The “size” of office real estate can be measured in two key ways: square footage and value. NAREIT estimates the combined value of all commercial real estate assets in the United States to be between $14.4–$17 trillion dollars. Of the four major asset classes, office space has the smallest square footage, at roughly 11.2 billion square feet. However, its combined value of $2.5 trillion is more than retail ($2.4 trillion) or industrial ($1.5 trillion).
The COVID-19 pandemic issued a huge hit to office real estate over the past few years. Shuttered offices and WFH life lead to a 28.5% drop in office space construction in 2020. Office sales in 2021 remained off by 60% from the last normal period. And as recently as Q1 2022, more than half of the 20 largest office markets in the U.S. saw negative office space absorption*.
*Net Absorption: the sum of square feet that became physically occupied minus the sum of square feet that became physically vacant during a specific period.
What is the Future of Office Real Estate?
While offices still face short- and long-term issues from the pandemic pivot, we’ve seen office occupancy and rents begin to stabilize in recent quarters. However, it’s likely we’ll continue to see shifts in need.
According to a recent National Association of REALTORS® (NAR) market survey:
- 63% reported an increase in short-term office leases.
- 69% reported an increase in companies leasing or moving into offices with smaller square footage due to working from home.
- 48% reported an increase in demand for flexible/co-working office space from individuals such as gig workers.
- 39% reported an increase in demand for flexible/co-working office space from enterprise clients and firms.
These changes have investors flustered. According to a 2021 survey among America-based real estate investors, half expected demand for office real estate to decrease up to 10% over the next three years. On the other hand, 12% of respondents reported that they expected an increase. The difference may be among those who expect to pivot to better meet the flexible and short-term demands reported by NAR.
What’s the Going Rate for Office Real Estate in the Asheville MSA?
If this outlook has you curious about investing in office properties, the next step is to understand the local Asheville MSA market. According to the most recent NAI Beverly-Hanks Market Reports, office transactions soared in Q1 and balanced out in Q2, totaling $84.3 million so far for 2022—nearly double the $43.6 million for the first half of 2021.
Leases tell a slightly different story. Leases for the first half of the year total 56, less than the 92 we saw through Q2 last year. However, compared to the national office vacancy rate of 12.3% at the end of Q1, Asheville MSA’s vacancy rate of 3.5% is looking really healthy!
In fact, Asheville recently received top marks in an analysis of economic and commercial market health across the country. NAR ranked Asheville as one of the nation’s “Top 16 Commercial Real Estate Markets”. The index cited office, industrial, and retail vacancy well below the national average. Overall, the Asheville commercial real estate market remains a stable investment against the current volatility of the financial markets!
Ready to Invest in Office Real Estate?
NAI Beverly-Hanks continually strives to be the best in the business and provide you with the expertise you need. Contact us today to speak with an NAI Beverly-Hanks agent about finding the perfect office spaces for your commercial investment goals.