Tech-driven regional markets were key in keeping national office fundamentals strong last year, according to the latest report from Cushman & Wakefield.
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Strong demand for office space, especially in western U.S. markets such as San Francisco and Seattle, buoyed the sector during 2018.
Markets leading the charge in 2018 — after Manhattan, which topped out at 10.4M SF absorbed last year — included San Francisco (4.8M SF absorbed during the year), Phoenix and Boston (both 2.8M SF) and Denver (2.7M SF).
All together, western U.S. markets accounted for 22.6M SF of net office absorption during the year, the highest volume since 2015, according to Cushman & Wakefield.
The fourth quarter was also strong in terms of absorption, with 20M SF of office space taken nationwide. Demand for office space has been growing consistently each quarter for more than eight straight years.
The strong pace of absorption caused the national office vacancy rate to decline to 13.2% in the fourth quarter, down from 13.3% during the previous quarter.
Vacancy rates dropped below 10% during Q4 2018 in a total of 29 markets — the highest number of markets below that benchmark in a decade, the report said.
Tech-driven markets were among the tightest nationwide, led by the Puget Sound region at 6.2%; San Francisco at 6.4%; Midtown South Manhattan at 7.2%; and, in North Carolina, Charlotte at 7.6% and Raleigh/Durham at 7.7%.
Construction in the sector was strong, but not enough to count as overbuilding. A total of 13.7M SF of new office space came online during the quarter, bringing the full-year total to 52.7M SF, the second-highest amount of new space completed since 2010, the report said.
Tech markets were also well-represented in development trends. About 14.5M SF of office was under construction in Midtown Manhattan by year’s end, followed by Silicon Valley (5.3M SF), Chicago (5.2M SF), San Mateo, California (4.5M SF), and Seattle (4.3M SF).
Relative to inventory, the markets with the highest construction underway at the end of the year were San Mateo (8%), Austin, Texas (7.8%), Nashville (7.6%), Seattle (6.8%) and Midtown Manhattan (6%).
On average, asking rents increased 2.1% nationally and 50 of the 86 markets tracked by Cushman & Wakefield experienced rent increases in the fourth quarter.
Major markets with the fastest rent growth over the past year included Orange County, California (up 12.1%), Midtown South Manhattan (up 11.5%), the San Francisco area's North Bay (up 9.5%), Raleigh/Durham (up 9.1%) and Portland, Oregon (up 7.7%).
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