Office Market Recovery Accelerating
2015-10-10“Because the improvement has been so gradual, it has largely gone unnoticed by many in the industry,” said Ryan Severino, Reis senior economist and director of research. “Improvement is becoming stronger and more consistent, which portents better times ahead for the office market over the next five years.”
Then there’s the matter of absorption vs. construction. In 3Q, nationwide office absorption came in at about 9.86 million square feet. At the same time, about 7.67 million square feet of office came on line. For the first three quarters of 2015, total absorption totaled about 25.3 million square feet, which is about 5.3 million square feet more than for the same period in 2014. Also, while spec office projects remain at very low levels, well below previous cycles, they are returning to the market. Spec tends to be in markets that are at the strong end of the spectrum—northern California; New York; Washington, D.C.—or in markets with older inventories.
Improving fundamentals are also driving rent increases, both asking and effective. Asking and effective rents grew by 0.6 percent and 0.7 percent during the third quarter. Also, effective rent growth of 3.5 percent year-over-year is strong, especially considering that vacancies are still relatively elevated. “To put that in context, year-over-year effective rent growth in the office market is roughly in par with year-over-year effective rent growth in the apartment market,” said Severino. Even so, the increases are “being somewhat inflated by a relatively small number of very strong markets which are having an outsized impact on the national data.”
Source: https://beta.cpexecutive.com/post/economy-watch-office-market-recovery-accelerating-2/
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