U.S. Office Sector: Demand for Space Slow but Steady Still Largely a Tenant's Market, but for How Much Longer?
WASHINGTON, Oct. 1, 2013 /PRNewswire/ -- Cassidy Turley, a leading commercial real estate services provider in the U.S., reports today that U.S. businesses continued to slowly fill up vacant office space in the third quarter of 2013, and limited new construction has vacancy rates falling in 70% of the country.
U.S. office markets absorbed 12.8 million square feet (msf) of office space in the third quarter, down from 15.6 msf in the second quarter. Third-quarter vacancy totaled 15.2%, unchanged from the previous quarter. Vacancy is now 2% lower than its recessionary-peak of 17.2%.
"Demand for office space is still subpar, but, nevertheless, it has been consistently positive for multiple, consecutive quarters," said Kevin Thorpe, Chief Economist at Cassidy Turley. "At the same time, new supply remains extremely constrained. In fact, demand for office space has now exceeded new supply for over two years. So the office sector is clearly tightening in most cities across the country."
There was 55.3 msf of office property under construction as the third quarter came to a close, up from 54.5 msf registered in the prior quarter. Development of new office buildings is 30% below pre-recession levels. Average asking rents in the third quarter of 2013 registered at $21.88, up 16 cents from the same period a year ago, and 42 out of the 80 metros tracked registered rent growth.
"It's still a tenant's market in most U.S. cities, meaning businesses still have leverage when negotiating for lower rents and attractive concession packages," Mr. Thorpe said. "But because of limited new supply, the pendulum is slowly shifting from a tenant's market to a landlord's market. Supply/demand fundamentals suggest the bulk of the country will be pushing office rents upward by this time next year."
The top 10 strongest markets in terms of demand for office space were Houston, with 1.7 msf of net absorption; New York City, with 1.3 msf; Phoenix, with 822,000 sf; Atlanta, with 740,000 sf, Denver, with 668,000 sf; Chicago, with 659,000 sf; Los Angeles, with 561,000 sf; San Mateo County, CA, with 516,000 sf; Seattle, with 499,000 sf; and Central New Jersey, with 467,000 sf.
The top 10 strongest markets in terms of rent growth were Denver, with 9.0% year-over-year rental appreciation; New York City, with 8.1%; Oakland-East Bay, with 6.3%; Austin, with 6.2%; San Jose, with 6.0%; Los Angeles, with 5.3%; Baltimore, with 5.3%; San Mateo County, CA, with 4.4%; Houston, with 4.3%; and San Francisco, with 3.9%.
Cassidy Turley's full third quarter office and industrial market reports will be available on Cassidy Turley's website October 16.
About Cassidy Turley
Cassidy Turley is a leading commercial real estate services provider with more than 3,800 professionals in more than 60 offices nationwide. With headquarters in Washington, DC, 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 approximately 400 million square feet on behalf of institutional, corporate and private clients and supports more than 23,000 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