Office Market Continues to Heat Up

  

ATLANTA, GA– As the temperatures outside begin to heat up, so does the U.S. office market sector. With an uptick in employment, rent growth and some construction on the horizon, the office market is showing signs of improvement.

Michael Bull

 That was the consensus of a panel of experts on the most recent episode of the “Commercial Real Estate Show” radio program, hosted by Michael Bull of Bull Realty.

 “Office employment growth grew at a 3.2 percent pace in the first half of the year,” says Walter Page, director of research at CoStar Group. Eight metropolitan areas - Atlanta; Boston; Chicago; Denver; New York; Orange County, Calif.; San Francisco; and San Jose, Calif. - have each experienced at least 1 million square feet of positive net absorption of office space so far this year, he added.

David Tennery

 The uptick in absorption paired with only 5 million square feet of completed office space in the first half of the year has caused vacancy rates in many markets to decline to 12.1 percent or less, Page said.

 The improvement in occupancy is beginning to generate an increase in rents. Gross asking rents are up 2 percent on a year-over-year basis in most markets. As rent growth continues, it will drive construction, Page said. By 2016, Page predicts 3 to 4 percent annual rent growth.

Walter Page

David Tennery, principal of office properties and development at Regent Partners, added that the increased demand for office space hasn’t come from just one type of office user. “It’s no longer just technology or professional services, but a very broad reach in terms of sector growth,” he said.

 While most signs point to recovery, concerns about the possibility of rising interest rates and the reduction in space usage by some office tenants mean this sector isn’t out of the woods quite yet.

“We have seen a 20 percent reduction in space usage with a typical tenant during the last 10 years, and we’re expecting a 1 percent decline in space usage per employee going forward, so that’s an issue,” Page said.

Sean O’Reilly of Ernst & Young added that in suburban settings, tenants are dropping from 250 square feet of space per employee to about 200 square feet. In urban settings, 150 square feet of space per employee is the norm, but some firms in intown areas have dropped that figure to 75 square feet, O’Reilly said.

 All of the panelists expressed concern about a potential rise in interest rates. O’Reilly said that if interest rates go too high, it can snuff out the recovery. “Investors are just looking for a stable environment at this point, and hopefully we have that,” he added.

 The entire office market episode is available for download at www.CREshow.com. The next “Commercial Real Estate Show” will be available on July 25 and will feature an update on the U.S. retail market.

For a complete copy of the company’s news release, please contact:

Stephen Ursery

The Wilbert Group

404.405.2354

sursery@thewilbertgroup.com