Office Rent Increases Accelerating in Most U.S. Cities

Jul 02, 2015, 10:44 ET from DTZ

WASHINGTON, July 2, 2015 /PRNewswire/ -- DTZ, a global leader in commercial real estate services, reported today tenant demand rebounded strongly in the second quarter of 2015 prompting rental rates to increase in over 70% of the United States. 

U.S. office markets absorbed 20.1 million square feet (msf) of space in the second quarter of 2015, up 15.3% from the same quarter one year ago. Demand for office space continues to outstrip the new development, which pushed vacancy rates down by 20 basis points (bps) from the previous quarter to 14.2% in the second quarter of 2015. Of the 80 metros tracked by DTZ, 68 reported occupancy gains, while 12 reported occupancy losses.   

Kevin Thorpe, DTZ's Chief Economist, Americas, says the stronger office sector trends mirror the stronger labor markets. 

"Net absorption is solid and picking up steam, which links directly to office-using job growth and is the strongest it has been in the current cycle," Mr. Thorpe said. "If you look at the last four quarters, tenant growth is nearing 80 msf at an annualized rate, which puts us back in pre-recession territory. Deliveries are only a fraction of what is being absorbed, and although we have more in the pipeline, we expect that the market will continue to tighten over the next two years."

U.S. office rents increased 2.7% in the second quarter compared to a year-ago—the strongest quarterly gain since peaking in 2008. Office rents rose in 59 out of the 80 metros tracked, and the construction pipeline continued to expand. In the second quarter of 2015, there was 107.7 msf of new office construction, up 36% compared to the same quarter one year ago.

"Rent growth trends are clearly spreading to more geographic areas and are being driven mostly by strong demand trends in the CBDs," Mr. Thorpe said. "Downtown areas in most U.S. cities are thriving right now, which is pushing rental rates up not only for high-quality class A space but across the board. Suburban office is still muddling through in most places, but the demand metrics in the CBDs are as robust as anything we have observed since the late 1990s."

For Q2 2015, the top 10 strongest markets in terms of demand for office space were San Jose, with 3.8 msf; Dallas, with 1.5 msf; Oakland, with 1.4 msf; Los Angeles, with 1.2 msf; Atlanta, with 993,000 sf; Phoenix, with 850,000 sf; Raleigh-Durham, with 828,000 sf; Philadelphia, with 723,000 sf; New York, with 709,000 sf; and Chicago, with 525,000 sf.

The top 10 strongest markets in terms of rent growth were San Francisco, with 13.8% year-over-year rental appreciation; Oakland, with 8.6%; Orange County, CA, with 8.4%;  San Mateo County, CA, with 8.1%; Nashville, with 7.6%; Denver, with 7.5%; San Diego, with 6.1%; Boston, with 5.9%; Charlotte, with 5.7%; and Houston, with 5.7%. 

DTZ's full second quarter office and industrial market reports will be available July 17, 2015, on the company's website.

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, facility 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.

DTZ announced an agreement to merge with Cushman & Wakefield in a May 11 press release. The new company, which will operate under the Cushman & Wakefield brand, will have revenues over $5.5 billion, over 43,000 employees and will manage more than 4 billion square feet globally on behalf of institutional, corporate and private clients. The agreement is subject to customary closing conditions and is expected to close before the end of 2015. For further information, visit:  www.dtz.com or follow us on Twitter @DTZ.

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