C&W: National Office Outlook on the Rise
- Nov 05, 2014
Cushman & Wakefield’s third-quarter U.S. CBD Suburban Office Market report shows the commercial office market is as strong as it has been in years and predicts the upward trend to continue in the immediate future.
“The chief takeaway is we’ve seen extremely strong leasing activity and also positive absorption through the first three quarters of the year,” Maria Sicola, Cushman & Wakefield’s head of research for the Americas, told Commercial Property Executive. “What we saw in the second quarter actually accelerated in the third quarter, and that combined with the strengthening economy tells us leasing fundamentals are not only stabilizing, but we expect the momentum to continue into next year.”
The report shows that the office market is on pace for its lowest vacancy rates and highest occupancy gains in more than five years, due in part to the strong job growth coupled with positive business sentiment. The national CBD office vacancy rate fell to 12.6 percent at the end of the third quarter, the lowest level since the first quarter of 2009.
“We’re beginning to see strong employment growth. We lost 8 million jobs during the recession and all those jobs have been recovered. We have some markets now in recovery mode or beyond recovery mode in terms of jobs,” Sicola added. “There’s strong demand, strong employment growth, strong business confidence and on the supply side, there hasn’t been a lot of new construction or excess sublease space on the market.”
Those factors also contribute to the robust leasing and rising rental rates. In fact, office absorption is on track to reach its highest level since 2007, with 31.9 million square feet in occupancy gains year to date, compared to 14.9 million square feet last year at this time.
“The rental growth we have seen has been strong in the technology and energy markets and we are starting to see rental growth in other markets as well,” Sicola said. “It continues to be in the core markets—Houston, San Francisco, Boston, the Silicon Valley, New York, Denver—and we’re also starting to see it in other markets like Atlanta and even Chicago.”
By year-end, office new construction is expected to total 10.4 million square feet, roughly half last year’s total. The report shows the most significant amount of space under construction is in Houston, Silicon Valley, downtown New York, San Francisco, midtown New York and Boston.
“In terms of availability of space, while we are expecting to see a concern to stronger construction activity, we’re already witnessing lack of availability for large blocks of space in some markets,” she added. “If you are a tenant and are looking to consolidate, and need a few thousand square feet and over, we are already beginning to see a lack of it in some markets.”
According to Sicola, Corporate America is actively expanding and working to position itself for the millennial workforce, which by 2020 is expected to make up more than half of the labor pool.
“For 2015, we expect to see a continued and accelerated recovery in the leasing markets,” Sicola concluded. “We expect rents to rise across the country in a number of markets, it will shift from a tenant-oriented market to a landlord-oriented market.”