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US office market fundamentals remained strong in Q3, driven by rebounding GDP and strong employment gains. Asking rents in particular ended the quarter averaging gains in both central business districts and the suburbs.
Class-A asking rents averaged $46.54/SF in CBDs, a 7.6% gain compared to the year-ago quarter, and $28.91/SF in the suburbs, a 3.3%, increase according to Colliers International’s latest office report—though quarterly declines in the East Bay and San Francisco slowed the record-breaking rent gains seen within the past 18 to 24 months.
Office absorption rebounded in Q3, nearly totaling the 23.8M SF absorbed in the first half of the year. Gains were fueled by suburban markets’ large inventories, which accounted for more than 16M SF of the 20.6M SF absorbed in Q3. Colliers International chief economist Andrew Nelson tells Bisnow office occupancy is nearing its prior peak, and it may become more difficult to fill spaces.
“The stock of available space that is really desirable is shrinking, so it gets harder to maintain the strong gains, especially in CBDs,” Andrew tells us. “We generally saw stronger absorption in CBDs than in suburban markets during this cycle. But as the good space in the CBDs fills up and reaches new record rents, particularly for large blocks of space, firms have been forced to consider alternative locations, so the suburbs have been outpacing CBDs this year, which is typical for office markets this late in the cycle."
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