Demand for U.S. office space strengthened in the second quarter of 2013, as 60 out of the 82 metros tracked registered positive gains in occupancy, according to research released today by Cassidy Turley, a leading commercial real estate services provider in the U.S
U.S. office markets absorbed 15.1 million square feet (msf) of office space in the second quarter, up from 5.0 msf in the first quarter. The current reading represents the third strongest quarter in the recovery which began in 2010. Vacancy rates in the second quarter inched down 10 basis points (bps) to 15.3%. Vacancy is now 1.9% lower than its recessionary-peak 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.”
[pullquote]“It is interesting to observe that tenants are consistently gravitating to newer buildings, and yet, that segment remains supply constrained.”[/pullquote]
Average asking rents in the second quarter of 2013 registered at $21.74, up 3 cents from the same period a year-ago. New office construction ticked up from 49.8 msf in the first quarter to 50.3msf in the second quarter of 2013.
“It is interesting to observe that tenants are consistently gravitating to newer buildings, and yet, that segment remains supply constrained,” says Thorpe. “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 12-24 months.”
The top 10 strongest markets in terms of demand for office space were New York, with 1.7 msf of net absorption; San Jose, with 1.2 msf; Houston, with 1.1 msf; Atlanta, with 800,000 sf; Chicago, with 780,000 sf; Omaha, with 703,000 sf; Oakland, with 672,000 sf; Central NJ, with 622,000 sf; Anaheim, with 580,000 sf; and Northern NJ, with 470,000 sf.
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 9.0%; San Jose, with 8.5%; Columbus, with 8.4%; Austin, with 7.7 %; San Francisco, with 6.3%; Nashville, with 5.9%; Baltimore, with 4.6%; and San Mateo, with 4.2% rent growth.