U.S.

office
market
report
Q1 2023

page 1 U.S. office insights | Q1 2023

U.S. office market trends
-42.2%
Q1 2023 leasing activity vs.
pre-COVID leasing activity
Mounting financial services disruption,
highlighted by the collapse of Silicon Valley
Bank and several banking acquisitions,
contributed to a temporary pullback in office
demand. Leasing activity is poised to rise as
2023 progresses—but is still unexpected to
approach pre-COVID levels—as tenants
capitalize on greater leverage and space
utilization strategies come to realization. The
quarterly increase of sublease supply could be
stemmed by the anticipated continued rise of
return-to-office efforts.
page 2 U.S. office insights | Q1 2023
+28.4%
post-COVID Trophy net
effective rents in Manhattan
Tenants seeking new construction and other
high-quality assets need to execute or risk
being boxed out by other requirements. Net
effective rents in the Trophy sector have
continued to climb since the pandemic,
despite weakened prevailing fundamentals,
highlighted by the 28.4% increase in net
effective rents in Manhattan. Conversely,
commodity properties continue to linger on
the market, incentivizing landlords to offer
generous concessions packages to remain
competitive. San Francisco net effective rents
have softened overall due to its exposure to
tech and financial services firms.
Source: AVANT by Avison Young, CoStar, Trepp
$36.3B
potential at-risk office loans
maturing by 2025
Continued office foreclosures, particularly
properties encumbered by fixed-rate loans
originated before 2021, are expected in the
near term, including dispositions by
institutional landlords with assets in gateway
markets, as debt burdens rise while cash flows
decline. According to Trepp, the cost of debt
has increased by 40-60% since 2021, signified
by benchmark 10-year Treasury rates
increasing by nearly 200 basis points, or 119%,
from the beginning of 2022 to Q1 2023.
Enterprising investors can capitalize on these
distressed conditions when acquisition pricing
becomes more palatable.
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.

page 4 U.S. office insights | Q1 2023 Source: AVANT by Avison Young

Fixed-rate CMBS office loan maturities
Loans originated Loan value Total loans
before 2021

$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.

page 5 U.S. office insights | Q1 2023 Source: Trepp

U.S. office market indicators

Development (msf) Net absorption as a % of inventory Direct asking rents (psf/FS)

Deliveries Under development 0.8% $45 $40.15
100.0 0.6% $40
0.4% $35
80.0 85.7
0.2% $30
60.0 0.0% $25
-0.2% $20
40.0 $15
-0.4%
20.0 -0.6% $10
$5
-0.8% -0.5%
0.0 $0
-1.0%
2017

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%

U.S. Class B-C

properties
3.2%

Boston 31.9%

Chicago 27.7% Disruption to the

Los Angeles 20.9%
banking sector
could negatively
Manhattan 32.8% affect demand for
San Francisco 19.0%
Trophy assets,
especially in
Washington, DC 6.8%
finance hubs.
Note: Based on active leases.
Excludes owner-occupied properties.
page 8 U.S. office insights | Q1 2023 Source: AVANT by Avison Young
Available office space
Sublease available space Direct available space
1,400 msf

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

Office cap rate 10-year Treasury rate Office 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)

Atlanta 170,583,657 58,000 2,506,405 26.4% 4.5% 30.8% (0.3%) $31.43

Austin 70,054,965 657,139 5,548,735 22.1% 6.5% 28.1% (1.2%) $51.12

Boston 251,523,093 68,352 3,059,707 13.5% 3.9% 17.3% (0.4%) $49.95

Charleston 12,584,184 145,000 199,303 13.2% 2.1% 15.3% 0.8% $33.09

Charlotte 76,710,978 328,780 3,381,340 19.0% 3.4% 22.3% (0.4%) $34.06

Chicago 327,382,860 0 2,288,333 23.0% 3.4% 26.3% (1.0%) $29.45

Cleveland 69,510,096 40,970 1,214,732 13.0% 1.0% 14.0% (0.8%) $20.85

Columbus 56,025,387 311,830 1,136,265 17.9% 3.5% 21.1% 0.4% $30.56

Dallas - Ft Worth 229,183,868 955,970 6,347,557 25.8% 4.2% 29.9% (0.9%) $33.21

Denver 125,770,370 0 2,865,838 22.9% 5.8% 28.3% (0.9%) $36.01

Detroit 114,904,565 26,028 722,000 19.6% 2.0% 21.4% (0.3%) $31.76

East Bay - Oakland 72,112,163 0 34,905 17.9% 4.6% 22.3% (0.4%) $38.88

Fairfield County 41,447,326 0 217,024 21.3% 6.3% 27.6% (0.4%) $36.63

Fort Lauderdale 33,165,297 0 164,706 19.0% 2.6% 21.6% (0.1%) $38.30

Greenville 17,128,056 0 525,000 12.5% 2.2% 14.6% 0.3% $24.77

Honolulu 21,855,194 0 65,000 8.7% 0.3% 8.9% 0.5% $18.73

Houston 209,729,812 0 1,029,217 27.6% 3.6% 30.9% 0.0% $32.42

Indianapolis 58,136,601 158,065 456,763 15.8% 1.9% 17.6% (0.6%) $21.48

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)

Inland Empire 16,584,599 0 0 12.3% 1.2% 13.5% (0.6%) $28.56

Jacksonville 26,942,200 0 0 20.0% 2.4% 22.4% 0.1% $22.38

Las Vegas 33,945,782 100,184 370,000 13.3% 1.6% 14.9% (0.9%) $28.00

Long Island 54,376,195 0 138,910 10.2% 2.1% 12.3% (1.2%) $28.27

Los Angeles 312,689,590 701,562 3,088,266 18.6% 3.5% 22.0% (0.6%) $43.33

Manhattan 514,538,968 0 3,985,838 15.0% 4.8% 19.7% (0.9%) $88.22

Miami 56,099,319 0 1,976,603 17.4% 1.4% 18.8% 0.6% $57.34

Minneapolis-St.Paul 112,357,001 60,000 545,756 18.2% 3.5% 21.5% (0.4%) $28.49

Nashville 47,427,554 0 3,036,967 22.1% 4.5% 25.9% (1.3%) $32.51

New Jersey 254,148,552 0 501,787 15.3% 3.6% 18.6% (0.4%) $32.86

New York City Outer Boroughs 83,978,128 425,982 1,479,327 16.1% 2.0% 18.2% 0.9% $42.23

Northern Virginia 159,280,441 0 4,911,907 21.9% 3.7% 25.5% (1.0%) $35.53

Ocala 1,426,316 0 0 12.4% 0.0% 12.4% 1.3% $16.44

Orange County 110,447,496 258,395 0 17.3% 3.8% 21.1% (1.3%) $31.58

Orlando 39,788,605 0 704,801 17.4% 5.8% 22.3% (0.7%) $26.84

Philadelphia 221,883,210 0 1,378,267 15.4% 3.1% 18.3% (0.5%) $30.87

Phoenix 133,123,562 138,054 1,143,672 17.6% 5.2% 22.7% 0.0% $30.70

Pittsburgh 81,011,249 0 172,000 16.5% 2.3% 18.7% (0.4%) $25.51

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)

Raleigh-Durham 59,197,230 280,000 2,654,486 18.3% 6.9% 25.1% (1.1%) $31.06

Sacramento 62,400,755 0 1,045,000 18.3% 2.6% 20.7% (0.5%) $25.41

Salt Lake City 1,914,503 0 0 25.3% 6.7% 32.0% 1.0% $26.58

San Diego 74,975,532 0 1,136,502 16.4% 3.1% 19.2% (0.1%) $38.36

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

Suburban Maryland 77,011,528 0 1,220,400 19.1% 2.1% 21.2% (0.3%) $31.61

Tampa 46,750,258 75,000 131,955 18.5% 6.2% 24.0% (0.1%) $30.39

Washington, DC 149,424,486 0 1,355,966 18.6% 2.4% 21.0% (0.5%) $58.14

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)

Trophy 346,396,986 595,520 26,841,248 17.0% 4.5% 21.5% (0.8%) $79.14

Class A 2,411,496,382 5,584,953 54,153,408 20.9% 4.8% 25.7% (0.5%) $40.65

Class B 2,258,634,476 1,128,483 4,692,307 17.4% 2.9% 20.3% (0.5%) $33.43

Class C 549,320,968 21,391 40,000 10.9% 1.0% 11.9% (0.3%) $31.28

Total 5,565,848,812 7,330,347 85,726,963 18.3% 3.7% 22.1% (0.5%) $40.15

page 18 U.S. office insights | Q1 2023 Source: AVANT by Avison Young, CoStar
Office insights
glossary of terms
Demand
– Leasing activity: total square footage of relocations,
renewals, expansions and subleases expressed when
the leases are signed, not when tenants take physical
occupancy of the space
– Absorption: period-over-period change in occupied
square footage
Supply
– Direct vacancy rate: space operated by landlords that
is ready for immediate occupancy
– Sublease vacancy rate: space operated by
sublandlords that is ready for immediate occupancy
– Total vacancy rate: sum of direct vacancy rate and
sublease vacancy rate
– Availability rate: space that is vacant plus space that
will become vacant over an indefinite time horizon,
including spaces that are occupied by vacating tenants
and under-construction properties
page 19 U.S. office insights | Q1 2023
Office rents and concessions Capital markets
– Asking rents: pricing guidance provided by landlords to – Investment volume: office sales dollars
tenants for available space expressed as full service (FS) expressed when the transactions close and based
– Base rents: fair market value of market-level lease on inventory thresholds; partial-interest sale dollar
pricing based on representative executed leases, amounts are not grossed-up to reflect the 100%
expressed as full service (FS) value of the sale
– Asset pricing: unweighted average per-square-
– Free rent period: months of free rent that are typically
foot asset pricing of market-level closed sales
provided upfront by landlords to tenants as a
– Cap rate: net operating income divided by sale
concession to offset the total cost of a lease and/or the
price; this measurement of market-level
construction timeline of an office suite
investment returns is calculated as an unweighted
– Tenant improvement allowance: an allowance
average based on closed investment sales
expressed in dollars per square foot provided from
landlords to tenants to offset build-out, engineering,
space planning and related permit costs
– Net effective rent: base rents discounted by the dollar
values of tenant improvement allowance and free rent
concessions expressed as full service (FS)
For more market insights and
information visit avisonyoung.com

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.

page 20 U.S. office insights | Q1 2023