While restrictions meant to limit the spread of COVID-19 have radically changed many aspects of our lives and drastically changed the business\u2014 commercial real estate (CRE) included \u2014 available data has not yet reflected the effects of the pandemic.<\/p>\n\n\n\n
Rather, the newest national office report re<\/a>l<\/a>eased by Yardi Matrix<\/a> shows that, although there are signs of a slowdown in the office pipeline, lease rates held mostly steady in March. In fact, the first quarter of 2020 was actually quite strong in terms of sales. Read on for highlights from the report.<\/p>\n\n\n\n Nationwide, average listing rates rested at $37.99 per square foot in March \u2014 down only $.26 or 0.7% from average rates in February. What\u2019s more, this represents an increase of 20 basis points from March 2019. Vacancy was also relatively stable, dropping 0.6% from February to land at 12.8%.<\/p>\n\n\n\n But, while the effects of the coronavirus are not yet reflected in these metrics, it\u2019s worth noting that lowering rates won\u2019t have much of an influence due to already-low leasing activity. As a result, a more noticeable change in listing rates could occur after restrictions are lifted and people start returning to the office, according to the office report.<\/p>\n\n\n\n Manhattan real estate has already recovered from two major hurdles<\/a> since the start of the century. Now, it\u2019s showing similar resilience, even though it\u2019s one of the areas hardest hit by the pandemic. Specifically, office space in Manhattan<\/a> experienced a year-over-year growth of 14.2% \u2014 the highest in the nation \u2014 in full-service equivalent, with rates resting at $85.84.<\/p>\n\n\n\n Manhattan also led in same-store growth with 13.3%. It was followed by San Francisco<\/a> with 8.3%, Seattle with 6.7% and Tampa with 6.2%. The vacancy rate in Manhattan was 7.4%, and several prominent office leases<\/a> were also signed in March.<\/p>\n\n\n\n Nationally, 148.9 million square feet of office space is under construction and, to date, Yardi Matrix data has not recorded any project cancellations. However, while many states exempted construction from stay-at-home orders, there are some concerning signs when it comes to the office pipeline.<\/p>\n\n\n\n For example, in a weekly survey conducted by the Association of General Contractors, 19% of respondents said an owner (including a public owner regarding its own projects) had directed them \u201cto cancel construction on a current project or one scheduled to start in the next 30 days.\u201d Notably, this figure is up 7% from the survey conducted two weeks prior.<\/p>\n\n\n\n Nonetheless, most markets where new construction is a large percentage of total inventory have low vacancy rates and high employment growth in office-using job categories. Therefore, newly added space is likely to be in demand.<\/p>\n\n\n\n However, there are two exceptions. First, Miami<\/a>\u2019s 2.5 million square feet of office space under construction represents 3.8% of its total inventory, which is considerably more than the national average of 2.3%. But, the city has experienced just 0.9% yearly growth in office-using jobs and has a middling vacancy rate of 12%.<\/p>\n\n\n\n Along the same lines, Houston has 4.2 million square feet of inventory under construction, but the city\u2019s vacancy rate is among the highest in the nation at 20.6%. Plus, Houston office<\/a> vacancy is also vulnerable to downturns in oil prices. Consequently, projects under construction and in the planning phase both here and in Miami may be questioned.<\/p>\n\n\n\n Before the coronavirus became a national concern, 2020 was gearing up to be a good year for real estate. Specifically, sales volume in Q1 reached just under $20 billion \u2014 on par with the first quarters of both 2019 and 2018. Unfortunately, Q2 is unlikely to be as successful because sales slowed considerably due to COVID-19.<\/p>\n\n\n\n Toward the end of 2019, average sales price per square foot spiked \u2014 a trend that continued into 2020. As a result, Q1 2020 had an overall average price and all-time high of $310 per square foot. Moreover, this spike wasn\u2019t the result of outlying trends, as prices rose in all asset classes and locations.<\/p>\n\n\n\n<\/span>Listing Rates Decrease Marginally in March, Manhattan Holds Strong<\/span><\/h3>\n\n\n\n
<\/span>Office Report Finds Supply Not Yet Affected, Miami & Houston Pipelines Vulnerable<\/span><\/h3>\n\n\n\n
<\/span>Q1 2020 Sales Volume Nears $20B, Prices per Square Foot Spiking Before Outbreak<\/span><\/h3>\n\n\n\n