The commercial real estate market in the United States is thriving, boasting an estimated worth of approximately $950 billion. With industrial space leading the way at 21 billion square feet, followed by retail at 13 billion and offices at 11 billion, there's no shortage of opportunities for investors and businesses alike.
Average Prices by Sub-Market
In the second quarter of 2020, the average price per square foot for US offices stood at just over $35. Retail spaces averaged $18.09 per square foot, while industrial spaces were priced at just under $8 per square foot. However, it's important to note that these averages can vary significantly based on location and real estate class.
Let's take a closer look at the average commercial rates in some key cities across the USA:
- New York: Metro New York offices command an average gross rate of $81 per square foot per year. Industrial spaces average $19 per square foot per year.
- Los Angeles: Offices in the metropolitan area have an average rate of $44 per square foot per year, while industrial premises are priced at $11 per square foot per year.
- Miami: CBD offices in Miami are in the same price range as Los Angeles, with slightly lower rates for industrial spaces at $8 per square foot per year.
- Boston: Metro offices in Boston average $39 per square foot per year, rising to $80 in Cambridge. Industrial properties, on the other hand, have an average price of $10 per square foot per year.
- Philadelphia: City center offices in Philadelphia go for $36 per square foot per year, while suburban spaces are priced at $27. Industrial properties have a rate of $6 per square foot per year.
- Atlanta: Offices in Atlanta have an average rate of slightly under $30 per square foot per year, with Downtown Atlanta commanding a rate of $35. Industrial spaces have an average price of $5 per square foot per year.
- Chicago: Office spaces in Chicago are priced at approximately $33 per square foot per year, with average rates exceeding $40 in The Loop. Industrial premises come in at $6 per square foot per year.
- Dallas and other urban centers in Texas: Office rates range between $25 and $30 per square foot per year, while industrial rates are below $5.
Calculating Price Per Square Foot
To determine the price per square foot in the USA, landlords consider various factors. In most markets, prices are calculated annually, although there are exceptions like the state of California, where prices are quoted monthly. The type of lease structure also plays a significant role. For example, a gross lease transfers most operating expenses to the landlord, while a triple net lease requires the tenant to cover these expenses.
Taking into account the lease structure, landlord conditions, and market factors such as demand and vacancy rates, the property's asking sale price is determined. This figure is then divided by the property's square footage to obtain the per square foot rate.
The Impact of COVID-19
The COVID-19 pandemic has had a noticeable impact on commercial property prices. In April 2020, as a result of restrictions and reduced business activity, prices experienced a moderate decline of between half a percentage point and 1%. By Fall, the Green Street Commercial Property Price Index showed a 10% drop from pre-pandemic levels, with shopping malls and hotels experiencing even sharper declines.
Retail spaces were hit the hardest, with some areas seeing prices drop to pre-2011 levels. Even resilient locations like New York and tourist-dependent areas like Miami and Las Vegas were not immune to the downward trend. As we navigate through 2021, analysts predict further changes in market dynamics, but they may take some time to fully materialize.
In conclusion, the United States commercial property market offers a diverse range of opportunities across various sub-markets. Understanding the average prices and factors influencing price per square foot is crucial for both investors and tenants. As we continue to adapt to the challenges brought about by COVID-19, staying informed about market trends will be essential for making informed decisions.
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