Urban Areas See Increase In Their Share Of Office Construction: Colliers

Just over 66% of the office space under construction in the top 15 U.S. office markets is in urban areas, Colliers reports, pointing to a small shift in demand from preferences for suburban space.

The report also found an unsurprising slowdown in overall office construction. At the end of Q2 2023, 43.2M SF of new office was under construction, compared with 50.1M SF in the same period last year.

Colliers' report a year ago covered similar ground, but analyzed the nation's top 10 office markets. That report found that 63.2% of construction was in urban submarkets.

This year, those same 10 markets saw 65.4% of construction in urban areas, according to Colliers. The added markets in this year's report were Denver, Phoenix, Philadelphia and South Florida, plus dividing the San Francisco Bay Area into two parts. 

In addition to the 43.2M SF under construction, 8.2M SF is undergoing renovation, the company said. About 12.5M SF of office properties were delivered during the first half of 2023.

In the top 15 markets, only 48.2% is pre-leased, a circumstance that “could add to future vacancy rates,” the 2023 report notes.

Tech companies still account for more of the pre-leased office space under construction than any other industry, making up 38% of the pre-leased space, despite some high-profile layoffs in the sector. Finance, insurance and real estate companies will take 27.3% of the pre-leased space.

The top market for office development in mid-2023, according to Colliers, is Puget Sound, with 7.3M SF under construction as of Q2 2023, followed by Boston and Manhattan, with 4.2M SF each.

The market with the least office space underway is San Francisco, according to the report, with 200K SF. Chicago is also sluggish, with 700K SF underway.