The office sector continued to weather the storm as we advanced into the year, with demand for high-quality space fueling development activity in the medium- and long-term. Office deliveries in the first half of 2022 amounted to nearly 30 million square feet of office space, according to CommercialEdge data. This represents a 26.7 percent drop from the same period last year, when 39.5 million square feet came online.
The bulk of the completed projects is highly concentrated in just a handful of markets, with the top five for office starts encompassing more than 7.5 million square feet—a third of the total. The list below highlights the top markets for office deliveries in the country between January and June 2022, based on CommercialEdge data.
|Rank||Market||2022 H1 Deliveries||2022 H1 Properties Delivered||2022 H1 Deliveries of Stock|
1. San Francisco
Life sciences and tech continue to be at the forefront of San Francisco’s development activity. As a result, the metro saw nearly 2.4 million square feet of office space delivered in the first half of 2022, accounting for 1.3 percent of total stock and 91 basis points above the national rate of 0.4 percent. Office deliveries recorded a 30.6 percent drop from the same period last year, when nearly 3.4 million square feet was added to the market. More than 4.3 million square feet was under construction as of June, equivalent of 2.7 percent of total stock.
In the South San Francisco submarket, three properties totaling 1.2 million square feet were finalized between January and June. The largest one consisted of Kilroy Realty’s Oyster Point–Inception, a 656,000-square-foot project which broke ground in 2019 and was completed in early 2022. The three-building asset represents the first phase of the company’s 50-acre, a 3 million-square-foot life science development. Fintech company Stripe occupies two buildings, while the third one is fully leased to biotech company Cytokinetics.
2. Los Angeles
Developers in Los Angeles kept busy in the first six months of 2022, focusing on creative office space, mixed-use buildings, as well as large developments. In total, they completed 11 projects with a combined square footage of 2.1 million, or 0.7 percent of total stock. This represents a 171.9 percent uptick from the previous year, when 762,891 square feet came online during the same timeframe. Another 3 million square feet was under construction at the end of June, accounting for 3.7 percent of existing stock.
The largest delivery in the metro consisted of Hudson Pacific Properties and Macerich’s One Westside, a 680,000-square-foot, $475 million mall-to-office conversion. The joint venture kicked off the redevelopment process in August 2019 and completed work last February. Right before construction commenced, tech giant Google signed a 14-year lease to occupy the entire property.
The pandemic’s impact on Chicago’s office landscape was significant, resulting in less than 600,000 square feet of new office space delivered in the first half of 2021. Development activity gained steam this year, with office deliveries in the metro during the first six months of 2022 totaling 2 million square feet—a 234.2 percent uptick from the same period last year—accounting for 0.6 percent of the total stock. An additional 2.4 million square feet was under construction as of June.
The largest project to come online year-to-date in June was a 1.5 million-square-foot project constructed by Riverside Investment & Development. Known as 320 Canal, the 52-story building is leased, among others, by BMO and Skadden. The Goettsch Partners-designed asset features the largest outdoor park in the West Loop and is part of the larger redevelopment of Chicago Union Station.
4. Dallas-Fort Worth
Sun Belt markets benefiting from significant in-migration had high levels of starts this year, with Texas leading the pack. In the Dallas-Fort Worth metro, eight projects totaling 1.6 million square feet of office space were completed year-to-date through June, equal to 0.5 percent of existing stock. Office deliveries were nearly on par with completions in the first half of 2021, when 1.5 million square feet were added to the market. Meanwhile, the metro’s active pipeline as of June encompassed 8.9 million square feet, with Dallas ranking first in terms of office starts across the country (3.8 million square feet).
The largest office project delivered within the metro was The Epic II, a 485,000-square-foot project in Dallas’ Deep Ellum neighborhood. Westdale Asset Management broke ground on the property in 2019, completing it in early June. Uber signed a lease to occupy the building’s entire office portion—which would have been its largest hub outside of its San Francisco headquarters—but expansion plans fell apart due to pandemic-induced woes.
5. Washington, D.C.
Flight-to-quality remains the strongest driver of office demand in Washington, D.C., where the average listing rate stood at $39.89 per square foot, 614 basis points above the national average. Developers completed four office projects totaling 1.5 million square feet in the first half of 2022, equal to 0.4 percent of stock. This represents a 16.6 percent increase from the same period last year, when 1.3 million square feet came online. Additionally, the metro had one of the largest active pipelines in the nation, encompassing 5.2 million square feet of office space at the end of June.
In March, a joint venture between Bernstein Cos. and Boston Properties delivered a 785,000-square-foot project in Bethesda, Md., which serves as Marriot International’s headquarters. Developed with the help of a $268.5 million construction loan from PNC Bank, the $600 million urban campus sits adjacent to one of the company’s hotels and houses 3,500 corporate employees.