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
