Top Office Metros Snapshot Q1 2016

by CoyDavidson on May 4, 2016

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Asking Rents Continue Their Ascent in 9 of the 10 Markets

This report (The Top U.S. Office Metros Snapshot) serves as a 1st Quarter – 2016 summary of the 10 largest U.S. Office metros (Manhattan, Washington, D.C., Chicago, Dallas, the San Francisco Bay Area, Houston, Atlanta, Los Angeles County, Boston and Seattle.

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Tech continues to strengthen across all major markets.

  • Office market fundamentals continued to improve in early 2016 in the core areas of all top-10 markets we track, though gains were muted from their record pace in 2015. Vacancies fell or were flat in six of the markets. The overall vacancy rate for these markets was stable quarter-over-quarter at 11.4% and down 70 basis points (bps) from a year ago.
  • Absorption was generally strong in the first quarter, with the core areas in eight of the 10 markets recording positive figures. Though quarterly absorption dropped in eight of the 10 markets, leasing was held back by limited vacant space and lower construction deliveries in most markets.
  • Loft and brick buildings continue to have strong demand by “Class A” office tenants across the country, as companies seek to recruit and retain top talent. Tenants are willing to pay a premium for these spaces, so unremarkable commodity space must look toward renovation to avoid falling into obsolescence.
  • Though venture capital funding paused at year-end 2015 and 2016 began with turbulence in the financial markets, the tech sector has yet to show any major cracks and tenant appetites for office space remain strong.
  • Asking rents continued their upward momentum in the core areas of nine of the 10 markets. Only San Francisco saw a modest drop, though attributable to the decline in the number of ultra-premium ($100+/sf) spaces available for lease.
  • After a volatile start to the year for the financial markets, the U.S. economy has shown resilience with the continuation of strong job growth; 215,000 jobs were added in March, marking the 66th straight month of positive job growth. Further, the labor force participation rate has increased in five of the past six months demonstrating worker confidence. This points to a growing need for office space, which should translate into further occupancy and rent gains. However, continued strains in the financial sector bear watching for signs of potential weakness in markets with a strong banking presence, such as New York City.

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