The post-recession economic recovery has been spotty but trending upward, and the second quarter 2014 national office market data indicates the trend is still in the right direction, according to Cushman & Wakefield. Following a strong first quarter performance, the nation’s 44 major office markets continued to expand with vacancies falling, asking rents remaining stable and even increasing, and leasing activity as well as net absorption on the rise, according to Maria T. Sicola, Cushman & Wakefield’s head of research for the Americas.
“After stabilizing, the nation’s economy has started to generate more jobs in 2014, and that has resulted in greater demand for office space in the national marketplace,” said Sicola. “The biggest news is that the overall vacancy in the 44 largest central business districts [CBDs] and suburban office markets fell to its lowest level in five years – which traces to the end of the recession,” said Sicola.
The combined CBD vacancy rate fell to 12.7 percent, a decline of 70 basis points year-over-year, while the suburbs fell by 60 basis points to 16.8 percent. Three of the lowest vacancy rates are in New York City: 8.2 percent in Midtown South, 10.0 percent in Downtown, and 11.0 percent in Midtown. Other notable markets are San Francisco at 9.0 percent; Boston at 9.9 percent; and Denver, Houston, Portland, Ore. and Sacramento, all between 11.0 and 11.7 percent.
Suburban office markets with the lowest vacancy rates include three in Northern California: non-CBD San Francisco (8.6 percent), San Francisco Peninsula (10.6 percent) and Silicon Valley (10.7 percent). Houston’s suburban market registered a 12.5 percent vacancy rate, followed by San Diego and Portland, Ore. (both 13.1 percent), Denver at 13.5 percent, and Baltimore at 13.6 percent.
“Our research indicates leasing activity is consistent with last year at 103.3 million square feet year-to-date compared to 104 million square feet one year ago,” said Sicola. “Overall, leasing in the nation’s CBD markets improved by 18.2 percent from a year ago, led by New York’s Midtown South, which more than doubled year-over-year.”
And leasing activity in Manhattan posted the second best performance in more than a decade. Midtown Manhattan, San Francisco and Chicago all reported the next largest year-over-year CBD leasing increases, according to Cushman & Wakefield’s research.
In contrast, suburban leasing activity fell by 10 percent year-over-year in the second quarter. “The difference is likely the result of the increasing attractiveness of the 24-hour cities to the workforce and the companies that employ them,” said Sicola.
Net absorption year-to-date totaled 10.5 million square feet in the nation’s CBDs and 10.3 million square feet in the suburbs. Notably, Manhattan alone contributed over 50 percent of the CBD total, with a 5.4 million-square-foot total. Manhattan’s leasing activity during the first half of 2014 amounted to 16.8 million square feet, or “37 percent above the market’s 10-year, six-month average of 12.3 million square feet,” said Sicola.
With the overall bounce-back of leasing activity, particularly in the CBDs, direct class A asking rents remained unchanged since first quarter but increased by 3.1 percent since mid-year 2013, averaging $47.39 per square foot. And even with the decline in leasing activity in the suburbs, rents there increased as well, by 3.9 percent year-over-year to $29.51 per square foot. The latter increase was fueled by pockets of rent growth in such key markets as Silicon Valley, Houston and Dallas.
“In general, we continue to see positive trends in the nation’s office market, and we anticipate that will continue throughout 2014,” said Sicola, “contingent upon the absence of any unforeseen economic or geopolitical events. But we are optimistic that the economy will continue to add jobs for the foreseeable future.”
Cushman & Wakefield Research for the Americas is recognized worldwide for the originality of its research and the value of its thought leadership. The team performs rigorous, property-oriented research and data-driven analysis on a global basis. Its professionals collect data from publicly available sources, owners, agents and – most importantly – from the firm’s brokers, appraisers and property managers.