U.S. Office Sector Enjoys Steady Leasing Momentum

Q4 2015 Office Trends

Q4 2015 Office Trends

National Office Market

National vacancies fell by 20 basis points in the fourth quarter, ending the year at 16.3 percent. The 20 basis point decline in vacancies is, though quite modest based on historical standards, the greatest pace of improvement in fundamentals for the office sector since the recovery began in 2010. Overall, vacancies fell by 40 basis points in all of 2015, suggesting that momentum in office fundamentals is building.

Asking and effective rents both grew by 0.8 percent in the fourth quarter and by 3.1 and 3.2 percent, respectively, throughout 2015. That is the best annual performance for asking and effective rents since the recession; the recovery for office properties has very much mirrored the slow growth of the overall economy, and it’s a shame that now that office fundamentals appear to be improving better – we appear to be running into more economic headwinds.

 

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Supply and Demand Trends

Q4 2015 Office Trends: The good news is, despite a murkier outlook for the domestic economy, we see much less supply growth for office markets that might lower expectations even further. The economy growing by 2.0 to 2.2 percent, creating jobs in the low 200s, on average per month, would augur well for office fundamentals. Our estimate of office-using employment has risen faster than nonfarm employment for the last couple of years, and we expect that trend to continue.

As it stands, our projections of vacancy rates falling gradually over the next five years are conservative. We expect to hit the 14s at the end of the forecast period, and if historical patterns hold true it is only below that figure that asking and effective rents can really start to take off.

Source: REIS Victor Calanog on Feb 23, 2016