Office Absorption Slows, but Rents Rising in Over 70% of the U.S.
CHICAGO, April 2, 2015 /PRNewswire/ -- DTZ, a global leader in commercial real estate services, reported today that although net absorption slowed in the first quarter of 2015, demand for office space remained consistently strong enough to push rents upwards in over 70% of the country.
U.S. office markets absorbed 10.6 million square feet (msf) of office space in the first quarter of 2015, down 5% from the same quarter one year ago. Despite the deceleration, net absorption has been positive now for 20 consecutive quarters. U.S. vacancy tightened by 10 basis points (bps) from the previous quarter to 14.4% in the first quarter of 2015. Out of the 80 metros tracked by DTZ, 60 reported occupancy gains, while 20 reported occupancy losses.
Kevin Thorpe, DTZ's Chief Economist, Americas, says that the slowdown in absorption was expected and can mostly be explained by seasonal factors.
"For six years in a row, absorption levels have been weakest in the first quarter of the year," Mr. Thorpe said. "The weakness is simply a function of weather, budget cycles, and other seasonal data quirks - it has never amounted to a sustained downtrend. Looking past seasonal volatility, job growth in most office-using sectors is as robust as nearly ever, which points to stronger occupancy gains and more aggressive rent growth in the coming months for the majority of the country."
U.S. office rents increased by 2.3% in the first quarter compared to a year-ago – the strongest quarterly gain since peaking in 2008. Office rents rose in 73% of the country (58 out of 80 metros tracked by DTZ). The construction pipeline is also picking up. In the first quarter of 2015, there was 98.5 msf of new office construction, up 51% compared to the same quarter one year ago.
Mr. Thorpe added, "If one takes a moving average of absorption trends, it suggests that if all of the new supply currently under construction delivered today, most of it would be occupied in a little over a year. In other words, barring a negative economic shock, there does not appear to be any danger of overbuilding in the current cycle. If anything, it appears as though the industry is underestimating future demand levels."
For Q1 2015, the top 10 strongest markets in terms of demand for office space were Houston, with 1.7 msf; San Jose, with 1.6 msf; San Mateo, CA, with 980,000 sf; Oakland, with 859,000 sf, Dallas, with 777,000 sf; Boston, with 675,000 sf; Atlanta, with 507,000 sf; Minneapolis, with 400,000 sf; Memphis, with 353,000 sf; and Austin, TX, with 312,000 sf.
The top 10 strongest markets in terms of rent growth were San Francisco, with 16.6% year-over-year rental appreciation; San Mateo County, CA, with 11.2%; Atlanta, with 9.5%; Orange County, CA, with 6.8%; San Jose, CA, with 6.4%; Denver, with 6.1%; Portland, OR, with 5.4%; Oakland, with 5.2%; Louisville, KY, with 5.2%; and Dallas with 4.9%.
DTZ's full first quarter office and industrial market reports will be available on the company's website April 16.
About DTZ
DTZ is a global leader in commercial real estate services providing occupiers, tenants and investors around the world with a full spectrum of property solutions. The company's core capabilities include agency leasing, tenant representation, corporate and global occupier services, property management, facilities management, facilities services, capital markets, investment and asset management, valuation, research, consulting, and project and development management. DTZ provides property management for 1.9 billion square feet, or 171 million square meters, and facilities management for 1.3 billion square feet, or 124 million square meters. The company completed $63 billion in transaction volume globally in 2014 on behalf of institutional, corporate, government and private clients. Headquartered in Chicago, DTZ has more than 28,000 employees who operate across more than 260 offices in 50 countries and represent the company's culture of excellence, client advocacy, integrity and collaboration. For further information, visit: www.dtz.com or follow us on Twitter @DTZ.
SOURCE DTZ
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