U.S. Office Space Market Update – Signs Of Life Emerging For Landlords
June 06, 2012
While far from being a strong Landlord market, office sector fundamentals are improving. The economy is generating enough new growth to fill empty space, albeit slowly. First quarter U.S. office vacancy rates improved slightly to 15.9%, down from 16% at the end of 4th quarter 2011. Office rents have been slowly inching up since the beginning of 2011.
Although Landlords are generally encouraged, the office space market is not recovering evenly across all metro areas. Tenant concession packages are still readily available in Atlanta – 21% vacant; Cincinnati – 23% vacant; Detroit – 24% vacant; Hartford – 24% vacant; Kansas – 22% vacant; Las Vegas -22% vacant; and, Phoenix – 28% vacant.
Markets that have had Tenant concessions dry up and see rental rates start to spike include Colorado Springs – 9% vacant; Honolulu – 7% vacant; Madison – 9.5% vacant; Midtown Manhattan – 10% vacant; San Francisco – 9.5% vacant; and, Washington DC – 10% vacant.
Looking forward, the trend for most metro areas is for mild tightening in the office space market further eroding Tenant concession packages with rental rates moving higher. Markets with tech or energy will tighten quicker while other markets will struggle to find the economic engine for sustained growth. As an aside, law firms, traditionally a driver for office space absorption in central business districts have been on the sidelines as they continue to shed jobs.
Once we get past the election cycle, we anticipate the job market to be much stronger which will fuel stronger office space absorption.
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