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 5.9% remains well below the national average of 12.3%.
New supply remains limited, with roughly 520,000 SF of space underway, representing just 1.4% of the total inventory in the market. Development has heavily leaned toward owner occupied and build-to-suit developments, but an uptick in speculative projects has been observed. Despite an overall weakened demand environment that has seen leasing levels trend well below pre-pandemic averages, demand for newer, higher quality, and more efficient space remains. Government agencies have been a large driver of this flight to quality, anchoring two of the largest speculative developments in recent years.
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.