ATLANTA, GA (Jan. 16, 2012) – After struggling for several years, the U.S. office market finally began to recover in 2011, and the sector is poised for further modest improvement in the year ahead. Guests on the most recent episode of the “Commercial Real Estate Show” shared those observations and others in a wide-ranging update on the office market. Topics included key statistics, the performance of different property types, future demand trends and the potential effects of the upcoming presidential election.
Last year, the national office vacancy rate declined by about 30 basis points when compared to 2010, said Ryan Severino (top right photo) senior economist for REIS. Asking rents rose by 1.6 percent and effective rents by 1.9 percent, the first increases in those statistics on an annual basis since 2008, Severino added.
“While this was not a spectacular recovery, it largely mirrors the performances of the overall economy and the labor market in 2011,” Severino said. “Both of those mounted a rather tepid recovery, and the performance in the office market was more orless congruous with that.”
Severino projects continued improvement for office fundamentals but added, “I don’t expect 2012 to be what I would consider a strong year for the office sector just because I don’t foresee a strong rebound in hiring.”
Class A office outperformed B and C properties in 2011 and should do so again in the near future, guests said. “It will probably take at least another year and some real rent increases to move people into Class B and the lower quality product,” said John Davidson (top left photo), a principal of Parmenter Realty Partners.
Fear, uncertainty and doubt about the economy – what he called “the FUD Factor” – are fueling companies’ reticence to lease more space, noted Ken Ashley (middle right photo), a senior director in the Atlanta office of Cushman & Wakefield. Another factor is tenants’ emphasis on the efficient use of floor space, a trend called “density with dignity,” he added.
In the future, the energy, healthcare, technology and education sectors will produce the most demand for office space, the guests predicted.
The improving market also means a reduction in lease incentives, guests said. “We certainly have seen and would anticipate to continue to see moderation of the insane levels of incentives that were going on for tenants through 2009, 2010,” said David Tennery (lower left photo), principal of Regent Partners’ Office Properties and Development Group.
“2011 seemed to have a real shift in the paradigm to more reasonable tenant-improvement allowances and more reasonable free-rent packages.”
“2011 seemed to have a real shift in the paradigm to more reasonable tenant-improvement allowances and more reasonable free-rent packages.”The next “Commercial Real Estate Show” will be available Jan. 18 and will provide an update on the U.S. retail market.
To learn more about the U.S. office market, listen to the entire show, which is available for download at http://www.commercialrealestateshow.com/usoffice11812.html.
Contact:
Stephen Ursery of Wilbert News Strategies, sursery@wnspr.com
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