U.S. office vacancies continue to drift lower
The U.S. national office vacancy rate fell slightly during the July to September period, shifting nine basis points lower (100 basis points equals one percent) to finish the quarter at 15.22 percent. During the third quarter, downtown vacancies increased six basis points to register 13.90 percent at quarter end, while suburban office vacancies dropped 16 basis points to average 15.87 percent. Over the past 12 months, the U.S. national office vacancy rate has fallen 39 basis points. In the third quarter, the flight to quality was particularly evident in Class A suburban markets where vacancies shrank 50 basis points.
Also somewhat positive is the nineteen-month-long gain in private-sector employment, averaging 136,000 jobs per month. Furthermore, office-using employment was relatively robust during the July-September period, with professional and business employment in particular up 3.4 percent year-over-year (September).
Office absorption positive for 6th consecutive quarter
The U.S. office market registered a sixth consecutive quarter of rising occupancy. Third quarter absorption came in at 9.4 million square feet (MSF). The composition of this quarter’s absorption was highly skewed to suburban markets, whereas last quarter two-thirds of total absorption was in downtown markets. Standout markets in the third quarter included Dallas-Ft. Worth, Houston, Midtown Manhattan, Orange County, Raleigh, Sacramento, San Francisco, San Diego, Silicon Valley, suburban Detroit and suburban Washington, DC. Continuing a trend seen over the past few quarters, Class A buildings continued to attract “move-up” tenants: in particular, suburban Class A absorption totaled 8.0 MSF, or just over 85 percent of overall absorption.