Economy Watch: US Office Sector Enjoys Healthy First Quarter

Stable vacancy rates and continued restraint in new office development contributed to the sector's strong performance in the first three months of the year, according to Transwestern's latest national report.
Source: Transwestern U.S. Office Market Report, 2018

The U.S. office market showed continued growth over the first three months of 2018, as vacancy remained stable for the sixth consecutive quarter, Transwestern reported on Wednesday, in its most recent report on the sector. Direct and overall (sublet) vacancy ended the quarter at 9.7 percent and 10.3 percent, respectively.

Overall, 22 of the 48 markets covered in the report registered improvements in office direct vacancy, while 30 of the markets recorded increases in overall vacancy (direct and sublet) over the period. The first-quarter national average asking rental rate of $25.66 per square foot marked the 20th consecutive quarterly increase, the report also noted.

Continued restraint in the development of new office product helped the sector. After cresting at 147.6 million square feet a year ago, the construction pipeline has begun to recede, with early 2018 marking the fourth straight quarter of declines. New York, Dallas-Fort Worth, Washington, D.C. and Seattle led new construction office starts in first-quarter 2018, which totaled 141.1 million square feet.

“Although well-below both three- and five-year running quarterly averages, net absorption in the office sector for the first quarter of 2018 slightly outpaced the five-year average, first-quarter performance of 14 million square feet,” said Stuart Showers, director of research for Transwestern’s Houston office, in a statement. “As a result, average asking rental rates continued to climb at a modest pace.”