First Quarter Office Sector Fundamentals Improving, Demand Remains Subpar
WASHINGTON, April, 2, 2013 /PRNewswire/ -- Demand for office space in the first quarter of 2013 flattened as businesses continue to push for space efficiency, according to research released today by Cassidy Turley, a leading commercial real estate services provider in the U.S.
U.S. office markets absorbed 3 million square feet (msf) of office space in the first quarter, down from 23 msf in the fourth quarter. Although this marks the third straight year of consistent net growth in the office sector, the first quarter demand figures were the weakest since the recovery began in 2010. Vacancy rates in the first quarter remained flat at 15.4% – still 200 bps higher than pre-recession levels.
"Market fundamentals continue to improve, but at the same time, the office sector is clearly going through a transformation," said Kevin Thorpe, Chief Economist at Cassidy Turley. "Many businesses are reassessing space needs and recognizing they can function perfectly well with a smaller, more efficient footprint. As a result, job growth is not giving us the same pop in demand that we have grown accustomed to."
Average asking rents in the first quarter of 2013 registered at $21.63, unchanged from the same period a year ago. New office construction increased from 41.8 msf in the fourth quarter to 48.9 msf in the first quarter of 2013.
"The development pipeline remains lean," Mr. Thorpe said. "Even with a slight pickup this quarter, new supply coming to the market is still 30% below the norm. The supply constraints are critically important for restoring balance to the office sector."
The top 10 strongest markets in terms of demand for office space were Dallas, with 728,000 sf of net absorption; Tampa, with 613,000 sf; Boston, with 610,000 sf; Denver, with 576,000 sf; Minneapolis, with 491,000 sf; Northern New Jersey, with 434,000 sf; Seattle, with 396,000 sf; Charlotte, with 328,000 sf; Raleigh-Durham, with 325,000 sf; and Suburban Maryland, with 299,000 sf.
The top 10 strongest markets in terms of rent growth were New York, with 11% year-over-year rental appreciation; Salt Lake City, with 10.9%; San Jose/Silicon Valley, with 10.3%; Austin, TX, with 6.6%; Denver, with 6.2%; Houston, with 5.6%; Dallas, with 4.7%; Nashville, with 4.3%; New Haven, CT, with 4.3%; and San Mateo, CA, with 3.4% rent growth.
Cassidy Turley's first quarter office market report will be available April 15 via Cassidy Turley's Research portal.
About Cassidy Turley
Cassidy Turley is a leading commercial real estate services provider with more than 3,700 professionals in more than 60 offices nationwide. The company represents a wide range of clients—from small businesses to Fortune 500 companies, from local non-profits to major institutions. The firm completed transactions valued at $22 billion in 2012, manages 455 million square feet on behalf of institutional, corporate and private clients and supports more than 28,000 domestic corporate services locations. Cassidy Turley serves owners, investors and tenants with a full spectrum of integrated commercial real estate services—including capital markets, tenant representation, corporate services, project leasing, property management, project and development services, and research and consulting. Cassidy Turley enhances its global service delivery outside North America through a partnership with GVA, giving clients access to commercial real estate professionals in 65 international markets. Please visit www.cassidyturley.com for more information about Cassidy Turley.
SOURCE Cassidy Turley