Cassidy Turley reports that despite weather disruptions, demand for office space remained steady, with 70% of the country reporting occupancy gains in the first three months of 2014.
U.S. office markets absorbed 12.0 million square feet (msf) of office space in the first quarter of 2014, down 21% from the fourth quarter, but up 63% from the same quarter one year ago. Despite the positive net growth, U.S. vacancy remained unchanged at 15.4% as 10.5 msf of new office space also was delivered to the market in the same quarter. U.S. average asking rents increased 2.1% compared to a year ago to $22.30 per square foot (sf).
“This report is mostly an extension of what we have observed over the last three years, which is modest demand increases coupled with little new supply,” said Cassidy Turley’sChief Economist Kevin Thorpe. “However, the broken record is beginning to have an impact on rents, where we are now observing consistent upward movements in more than 50% of the country.”
Regionally, net absorption in the Northeast increased by 219% in the first quarter compared to a year ago, the West was up 51%, the South was up 30%, and Midwest was down 3%. Nationally, there was 65.4 msf of new office buildings under construction as the first quarter came to a close, up 11% compared to the previous quarter and up 31% compared to the same quarter one year ago.
Thorpe added, “It is worth remembering that we had a number of temporary factors slowing growth in the first part of the year, including a capital flight out of emerging market currencies which rattled the equity markets, geopolitical tensions with Russia, and an abnormally harsh winter which delayed consumer spending and business growth. As we enter spring, the economic data in the U.S. should resume the stronger trajectory that we observed in the second half of last year. Likely, we will see much stronger demand numbers in the office sector for the remainder of the year.”
The top 10 strongest markets in terms of demand for office space were North New Jersey, with 1.8 msf of net absorption; Houston, with 1.7 msf; New York, with 1.6 msf; Dallas, with 1.1 msf; Atlanta, with 890,000 square feet; Central New Jersey, with 851,000 sf; San Francisco, with 695,000 sf; Phoenix, with 625,000 sf; Denver, with 575,000 sf; and West Palm Beach, with 383,000 sf.
The top 10 strongest markets in terms of rent growth were San Francisco, with 25% year-over-year rental appreciation; New York, with 9.3%; Houston, with 8.9%; Phoenix, with 8.9%; San Mateo, with 7.4%; Dallas, with 7.2%; Central New Jersey; with 6.7%; San Jose, with 6.6%; Austin, with 6.5%; and Denver, with 5.7%.