Madison tenants are gravitating toward smaller, higher-quality office spaces, weakening the demand in the market. Despite shrinking space needs, vacancies have largely stabilized, hovering between 5.5 and 6 percent since second quarter of 2021, thanks to a relative lack of supply additions and the ceasefire of companies making office closure announcements that contributed to the spike in vacancies seen in 2021.
The relative stability of Madison’s office market has proven advantageous to property owners in the area, who have enjoyed more leverage since the onset of the pandemic with setting lease rates when compared to the national average. The delta in annual rent growth reached its widest point in the first quarter of 2022, when Madison’s 3.8 percent rate growth outpaced the national average by 230 basis points.
Meanwhile, elevated interest rates and a growing divergence in pricing expectations between buyers and sellers appears to have finally materialized into a drop in sales activity early in 2023. Although the back half of 2022 enjoyed a late surge of investment activity, with buyers closing on over $100 million in acquisitions, first quarter figures paint a very different investment picture, with quarterly deal volume dropping by more than 70 percent.
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