JLL’s Q4 National Office Market Report Shows Broadening Recovery
- Jan 15, 2014
Jones Lang LaSalle’s 2013 National Office Market Report revealed that the U.S. national office market absorbed 13 million square feet of space during 2013’s fourth quarter, the highest level recorded since 2007.
“The chief takeaway of the report as to where we are in the office market in the overall recovery is in the past 36 months we were mired in a recovery that was largely dominated by a handful of geographies. Those were largely tech heavy and energy rich geographies,” John Sikaitis, JLL’s managing director local markets and office research, told Commercial Property Executive. “What we’ve been seeing over the last couple of months and expect as we head into 2014 is a much more diversified and durable recovery that includes many more geographies and many more industry segments.”
The last three months of 2013 also marked the 15th consecutive quarter with positive net absorption. For the report, JLL examined 44 major downtown and 55 suburban markets and saw occupancy gains in 90 percent of the markets year over year. Additionally, more than 80 percent experienced rent growth in the last 12 months.
“We believe the pace of the recovery will pick up largely for the fact that more markets are participating in the recovery,” Sikaitis said. “The overall economic outlook is very strong in the private sector which continues to have record profits, and some profits are being re-invested into the marketplace. By the middle part of 2014, we expect employment levels to surpass the levels of 2007.”
The report also shows vacancy rates during the past 12 months dropped by 40 basis points to 16.6 percent—its lowest rate in five years. According to Sikaitis, the Central Business Districts faired better than their suburban counterparts with a 13.9 percent vacancy rate compared to 18.2 percent in the suburbs, which he attributes to a shift in demographics.
“You can’t underestimate the Millennial generation and what they are pushing in the market. There’s been a significant amount of activity coming from the suburbs back into the cities,” he said. “A large trend is Millennials wanting a sense of place and more people are extending the time they live in cities by a couple of years.”
Technology-driven markets continued to gain speed with Northern California tech hubs, the Pacific Northwest, Cambridge near Boston and New York’s Midtown South regions recording 7.6 million square feet of net absorption for the year or 1.8 percent of total inventory levels.
Based on his observations, Sikaitis said he believes that some cities that haven’t had much growth lately will see it come in the next year or two. He mentions Chicago, Philadelphia, Atlanta, Los Angeles, Dallas and Miami as those that fall into that category.
“Look at the industry makeup of those markets, they all have a very diversified economic base and tenant base,” he added. “As recovery picks up, it means more industries and parts of the economy participating.”
As for what’s ahead, Sikaitis said that he foresees forward, brighter economic prospects continuing to push leverage in the landlords’ favor until additional supply hits in mid-2015 into 2016.
“A combination of diminishing new supply and a dwindling number of large- and mid-sized blocks of space will keep mid-sized tenants as the main drivers of activity,” he concluded. “When we look at the overall economic fabric, we see more positives than challenges. There is more optimism that we’ve seen in the market in the last seven to eight years.”