Slow and steady: Office prices creep up nationally

The office market is slowly regaining its momentum.

In August, office prices were up 1.9 percent compared to three months before, according to MSCI’s commercial property price index. Properties in central business districts saw stronger price growth than those in suburban areas.

However, this growth was slower than the 2.3 percent increase in pricing across all commercial property types during the same period.

Year over year, both office buildings and all commercial properties saw their prices grow by roughly the same amount, 2.5 percent. This growth was lower than that of industrial and retail assets, whose prices were up 5 percent and 5.3 percent year over year, respectively.

Offices did outperform apartment buildings, whose prices were flat over the past three months and up just 0.2 percent year over year.

The office sector is still recovering from the pandemic, which triggered scores of vacant properties and a plunge in pricing. Some landlords are working to repurpose their office properties, looking for ways to convert long-vacant space into new uses as many employees continue to work either partially or fully from home.

Compared to five years ago, office prices in August were 8.4 percent lower, according to MSCI. They are even 21.1 percent lower than they were three years ago, when the U.S. was still in the throes of the pandemic, and likely when landlords and investors first realized their office properties would not return to full form any time soon.

But signs are pointing toward offices ending the year much stronger, at least in New York City, which saw leasing activity surge 41 percent year over year in August. If leasing continues at this pace, the city is projected to rent out some 40 million square feet of space — a milestone not achieved since before the pandemic.

Nationally, the vacancy rate for office space in August dipped by 80 basis points year over year to 18.7 percent, according to data firm Yardi Matrix. In Manhattan, the rate fell 300 basis points to 13.6 percent, the lowest among the top markets in the country.

Commercial real estate’s recent pricing gains mirror the sector’s performance. Private real estate assets posted a quarterly return of 1.3 percent, according to research by MSCI.

That’s more than double the returns of the first quarter and a vast improvement from the fourth quarter of 2024, when real estate saw returns of -2 percent.