Office Sector Delivered Strongest Performance Since Recession in Q1 2014

The office sector, often known to be on the bottom part of the real estate food chain, is making waves as of late, showing strong net absorption, spiked up rents and rise in development, according to JLL's Q1 2014 Office Highlights.
John Sikaitis

John Sikaitis, JLL

The office sector, often known to be on the bottom part of the real estate food chain, is making waves as of late, showing strong net absorption, spiked up rents and rise in development, according to JLL’s Q1 2014 Office Highlights.

“Office is definitely seeing some momentum, for the past couple of quarters we’ve seen a deeper and more diversified demand across all segments of the markets,” John Sikaitis, managing director of Research at JLL told Commercial Property Executive.

For the first time during the recovery, rents broke and currently stand at $30 per square foot. Net absorption reached 8.4 million square feet, the highest first quarter during the recovery so far. This represents a year-over-year increase of 28.3 percent. Total vacancy has remained the same, 16.6 percent, in part due to 5.4 million square feet of new space coming to the market, providing tenants in select geographies with new space options.

Sikaitis attributes some of this office gain to more white-collar jobs being created.

“When we look at the private sector of the economy of the U.S., it’s one of the brighter spots of the globalized economy right now,” Sikaitis told CPE. “Corporates are still sitting on a ton of cash and they’re finally starting to invest in the marketplace, hiring particularly among the office-using job sectors.”

According to the JLL  report, pent-up demand has manifested itself as increased tour activity, which is beginning to translate into significant asking rent growth, with rents going up 1.2 percent over the course of the quarter. Leasing activity, on the other hand, fell for the second quarter in a row, reaching only 58.3 million square feet, as a shrinking number of space options began to limit firms’ ability to relocate or expand.

Nevertheless, office development is on the upswing, as almost 56 million square feet of space is currently under construction. This number is 18.5 percent higher than the last quarter and 28.3 percent higher than same time last year.

“We’re in an environment where we’re definitely seeing an uptick in development, especially in  the past couple of quarters, but still seeing a fraction of the development that we typically six or seven years ago, a much more conservative approach form the development community,” Sikaitis added.