Demand for Office Space Strengthens in 2nd Quarter
WASHINGTON -- Demand for office space in the United States strengthened in the second quarter as 60 of the 82 metro areas tracked registered growth in occupancy, reports Cassidy Turley, a provider of commercial real estate services.
The reading reflects the third-strongest quarter since the economic recovery began in 2010.
Markets absorbed 15.1 million square feet of office space in the second quarter, up from five million square feet in the first quarter, Cassidy Turley research found. Vacancy rates in the second quarter inched down 0.1% to 15.3%. Vacancy is now 1.9%, lower than its peak during the Great Recession of 17.2%.
"Even though there is a general push for space efficiency across most markets, business growth has been strong enough to generate consistent improvement in the office-leasing fundamentals," said Kevin Thorpe, chief economist at Cassidy Turley. "The demand metrics continue to be the strongest at the high end (Class A) and the low end (Class C) of the market, while the middle segment of the market continues to struggle to retain existing tenants or find new ones."
Average asking rents in the second quarter registered at $21.74, up three cents from the same period a year-ago. New office construction ticked up from 49.8 million square foot in the first quarter to 50.3 million square foot in the second quarter.
"Tenants are consistently gravitating to newer buildings, and yet, that segment remains supply constrained," Thorpe noted. "New development remains 30% below the norm. So, this one sliver of the market, new space, is entering into a tight supply/strong demand scenario. Rents could very well soar for the new office space that delivers to the market over the next 12 to 24 months."
The top 10 strongest markets in terms of demand for office space were New York, with 1.7 million square feet of net absorption; San Jose, Calif., with 1.2 million square feet; Houston, with 1.1 million square feet; Atlanta, with 800,000 square feet; Chicago, with 780,000 square feet; Omaha, with 703,000 square feet; Oakland, Calif., with 672,000 square feet; Central New Jersey, with 622,000 square feet; Anaheim, Calif., with 580,000 square feet; and Northern New Jersey, with 470,000 square feet.
The top 10 strongest markets in terms of rent growth were Salt Lake City, with 11.3% year-over-year rental appreciation; Denver, with 9.8%; New York, with 9%; San Jose, with 8.5%; Columbus, Ohio, with 8.4%; Austin, with 7.7%; San Francisco, with 6.3%; Nashville, with 5.9%; Baltimore, with 4.6%; and San Mateo, Calif., with 4.2% rent growth.
Cassidy Turley employs more than 3,800 professionals in more than 60 offices nationwide.
Published by The Business Journal, Youngstown, Ohio.
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