WASHINGTON, Oct. 1, 2014 /PRNewswire/ -- Cassidy Turley, a leading commercial real estate services provider in the U.S., reported today that U.S. office sector fundamentals continue to tighten, which is causing rent growth to heat up in the majority of the country.
U.S. office markets absorbed 20.5 million square feet (msf) of office space in the third quarter of 2014, which is an increase of 20% compared to the previous quarter and an increase of 38% compared to the same quarter one year ago. U.S. vacancy rates fell 20 basis points (bps) from 15.0% in the second quarter to 14.8% in the third quarter. Of the 80 metros tracked by Cassidy Turley, 64 reported occupancy gains in the third quarter.
Cassidy Turley Chief Economist Kevin Thorpe said the tightening in the office sector links directly to stronger trends in the labor markets.
"The single most important factor for the office sector is employment," Mr. Thorpe said. "Businesses have been creating well over 200,000 net new jobs per month for several months now, the highest stretch of job creation in almost 15 years. About 30% of those new jobs require office space, so this clearly creates a stronger economic backdrop for the office sector.
"It is also encouraging to see that job openings in the U.S. are as high as they have ever been, suggesting the strong employment trends are likely to continue," Mr. Thorpe continued.
The third quarter report also revealed that both rental rates and development activity are heating up. Average asking rents in the U.S. rose 2.3% compared to a year-ago to $22.48 – the strongest appreciation rate in five years. There was 83.5 msf of new office space under construction as the third quarter closed, up 40% compared to a year ago.
Mr. Thorpe added, "Developers are hustling now to get new product to the market given the stronger absorption trends particularly for newer, high-quality space. But it will take a couple of years for all of this new development to materialize, meaning demand will continue to outstrip supply, which will keep upward pressure on rents."
Regionally, net absorption in the Northeast increased by 76.4% from the second quarter; the West was up 13.9%; the South was up 6.9%; the Midwest was down 14.8%.
The top 10 strongest markets in terms of demand for office space were New York, with 2.7 msf of net absorption; San Jose, CA, with 1.0 msf; Sacramento, with 1.0 msf; Chicago, with 975,000 square feet (sf); Boston, with 871,000 sf; Denver, with 831,000 sf; Los Angeles, with 829,000 sf; Raleigh, with 657,000 sf, San Diego, with 650,000 sf; and Baltimore, with 635,000 sf.
The top 10 strongest markets in terms of rent growth were San Francisco, with 14.4% year-over-year rental appreciation; Houston, with 10.8%; New York, with 8.3%; Denver, with 7.4%; Boston, with 7.3%; Phoenix, with 7.1%; Raleigh, with 6.9%; Minneapolis, with 6.2%; San Jose, with 5.6%; and Austin, with 5.5%.
Cassidy Turley's full third quarter office and industrial market reports will be available on the company's website October 17, 2014.
About Cassidy Turley
Cassidy Turley is a leading commercial real estate services provider with more than 4,000 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 $25.8 billion in 2013, manages approximately 400 million square feet on behalf of institutional, corporate and private clients and supports more than 24,000 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.
Cassidy Turley announced in a press release on September 22 that it has entered into an agreement with an affiliate of DTZ Investment Holdings, backed by TPG, PAG Asia Capital and Ontario Teachers' Pension Plan (the Consortium that agreed to acquire DTZ), to sell 100% of the equity interests of Cassidy Turley. The agreement is subject to customary closing conditions and is dependent on Cassidy Turley's combination with the operations of DTZ Group (DTZ) to create a global, full-service commercial real estate services company. The Consortium's acquisition of DTZ is currently scheduled to close in early November 2014. The acquisition of Cassidy Turley is expected to close on December 31, 2014.
SOURCE Cassidy Turley