National Office Vacancies Dip, Rents Rise In Q3 Ahead Of Historic Supply Wave
The United States office market continues to enjoy steady growth as the current economic cycle continues to expand.
Office vacancy declined ever so slightly and rents rose modestly nationwide in the third quarter, according to reports from Cushman & Wakefield and Transwestern. Construction has been rapid in many major cities, but the markets have kept pace; Transwestern reports that absorption in the quarter was 17% better than in Q3 2017.
Both companies note the strong economy and the prevalence of technology as chief drivers of the U.S. office market's continued success, with unemployment remaining low and tech companies in fierce competition for talent. It is no surprise, then, that New York's Midtown South submarket and San Francisco's North Bay submarket were among the nationwide leaders in year-over-year rent growth, according to C&W.
Amazon aside, Midtown South has become the hub for major tech companies, with both Google and Facebook in continued expansion mode. Seattle's office asking rents rose 14% between the midpoint of 2016 and halfway through this year, corresponding with the city overtaking San Francisco as the country's leader in tech job growth.
Developers have been working frenetically to keep pace, and they may be at risk of pushing the needle too far in the other direction. C&W expects the next five quarters to have the most deliveries of any such period in over a decade. This wave of construction is coming at a time when higher interest rates are taking fuller effect and the economy is normalizing in the wake of the December 2017 federal tax cut.
Transwestern tells a slightly different story, finding that office construction peaked in early 2017 and has moderated somewhat since. But neither report found any reason to expect a radical reversal of the current development trends.