Madison’s office market was on solid ground heading into the pandemic thanks to few speculative under construction projects, tight vacancies, and an already affordable rental market. Vacancy compression has been strong over the past decade, but the market has experienced vacancy softening over the past few quarters due to several move-outs and some minor new speculative supply additions. However, this impact has been relatively mild and the current average market vacancy rate of 5.8% remains well below the national average of 12.3%.
Most notably, Block 1 of the $300 million Madison Yards development broke ground in 21Q4. The 165,000-SF office building will be home to the State of Wisconsin Investment Board, which signed on for close to 90,000 SF. Construction on the office building is set to complete in spring of 2023, but further phases will see additional offices as well as apartments, hotels, and retail built over the next several years.
Meanwhile, rent growth in the market remains muted compared to historic averages, but overall investment activity has picked up in recent quarters. Total sales saw a notable increase in 2021 thanks to a sharp uptick in the total number of transactions, but the bulk of deals continue to skew toward smaller investment deals and owner user transactions as institutional investors have been less active than in years past. Perhaps most telling of current office market conditions, the top two sales of 2021 were for planned conversions and redevelopments as older and outdated space becomes increasingly difficult to relet.