Jobs, Demand Drive US Office Development
- Feb 04, 2019
Strong demand for space—underpinned by healthy growth among office-using industries—keeps the U.S. office market’s performance steady, according to a survey of 115 markets conducted by Yardi Matrix.
In 2018, business professional and technical services led expansion with the addition of 286,000 jobs, followed by strong growth in accounting and bookkeeping services, as well as other sectors. On a year-over-year basis, Orlando topped major U.S. metros with 5.4 percent office employment growth, while Seattle, Houston and Charlotte also displayed robust job growth in office-using sectors.
The development pipeline is strong and deliveries in 2019 will likely mirror 2018 levels. Some 157.4 million square feet is underway, representing 2.7 percent of total stock. It comes as no surprise that the bulk of new construction is located in urban or CBD areas—Manhattan and Chicago have the most construction underway by metro.
In December 2018, rents averaged $33.41 per square foot on a national level, down 0.7 percent compared to the previous quarter. Manhattan and San Francisco led the way with the highest rents, while the burgeoning technology market is driving demand in the Bay Area and Silicon Valley. San Francisco had the biggest increase in asking rents over the previous quarter, at 5.5 percent. Demand is also compressing vacancy rates—San Francisco, Brooklyn, Manhattan and Seattle had vacancy rates in the single digits.
Long-term trends such as an increasing focus on smaller workspaces, the growing number of remote workers and more collaborative space play a significant role in moderating demand. The coworking industry is expanding at a fast pace—according to a late 2018 study that included 20 markets, Yardi Matrix found 43 million square feet of active shared space leases. Manhattan topped the list with 13 million square feet of coworking space.
Nationally, sales volume decreased in 2018 to roughly $80 billion, down from approximately $90 billion in 2017. Despite flattening acquisition yields, sales per square foot were slightly up. Manhattan and Washington, D.C., led all metros in investment, while transaction activity was weak in suburban markets such as Tampa and Orlando.
To read the full report, visit the Yardi Matrix website.