2014 State Of The Market Report
March 03, 2014
Here are some highlights relating to the current state of commercial real estate:
Tenants are still hesitant to commit to new space. A survey of 90 global office markets including Europe, Asia Pacific and the US found most corporate leasing prospects are hesitant to sign leases for more office space before they see solid evidence of sustained economic recovery. Though London showed an increase in new space leased, other European markets are still focused on cost cutting and are holding back on expansion. The Asia Pacific market has been impacted by slowing growth in China, and half of US markets showed lower absorption rates.
The High Tech industry is propelling double digit rent growth. Ten technology dominated submarkets in the US have recently experienced record increases in office rents. Silicon Valley leads the way, with rents increasing 51% over the past two years, followed by Redwood City, California (San Francisco area), Midtown South in New York City and Mountain View, California. The increase is fueled by high tech job growth acceleration that has occurred over the past year.
Office space construction in the US is declining. The commercial real estate firm Costar’s recent survey found that only five markets – New York, Houston, Washington, Dallas-Ft. Worth and the San Francisco Bay area – had large scale office construction growth. Modest job growth, high underemployment, increasing self-employment and more efficient use of existing space are the primary causes of the hiatus on new construction of office space.
Some US markets are showing declines in vacancy rates. Manhattan, San Francisco, Pittsburgh, San Jose, Houston and Nashville currently have the lowest vacancy rates for office space. The largest declines in vacancy are in the Midwest and South. Houston and Washington, DC were the leaders in new construction completion in 2013. Speculative construction remains concentrated in areas with growing technology and energy job growth.
We’ve all heard the quip about the three most important things in real estate: location, location, location. It is certainly true for commercial office space in 2014. Rents and occupancy rates are rising in markets located near booming high tech and energy hubs. Locations that lack drivers of job growth are still struggling with low occupancy rates.
If you have questions about how the current state of the market might affect your commercial real estate requirements, we’d be happy to answer them.
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