U.S. Office Absorption Still Positive, But Weaker than Expected

by CoyDavidson on April 13, 2012

US Office Market Snapshot

In Q4 2011, national office vacancy was over the hump, and going down gradually for 7 quarters. Did that trend continue? Preliminary statistics from our National research department indicate yes, vacancy decreased again, but even more gradually.

National absorption was firmly in positive territory, but weaker than recent quarters and lower than we’d expected. National vacancy dropped ever so slight by .09% to 14.92 as the U.S. office market absorbed 7.7 million square feet in the first quarter. Our preliminary numbers could be revised upward, but we know that this number won’t crack the ten million mark This is lower than what we saw in the previous three quarters, when net absorption was hovering around 10 million square feet per quarter.

U.S. Office Market

Most Markets Saw Positive Absorption

Of the 53 U.S. markets that we have numbers for today, 33 saw positive absorption. Of the large U.S. markets (100+ million SF) – the only negative absorption was in 6 markets:

  • Chicago, Washington DC, Phoenix, Boston, Midtown South Manhattan, Central NJ

Houston still leads in office absorption, where Energy industry drives demand and over 1 msf of office space absorption was posted in Q1. The biggest contributors to the national positive absorption figures in the first quarter were:

  • Houston
  • Midtown Manhattan
  • Downtown Manhattan
  • Seattle
  • Atlanta

Our Short-Term Outlook: More Measured Rebalancing

Employment is growing, but not as strongly as we had expected. The less than stellar March employment numbers of only 120,000 net new jobs diminish the prospects for accelerating office space absorption  in 2012.

We are expecting positive growth in the absorption numbers. CBD absorption will rise (58.8% of markets) or hold steady (35.3% of markets) in almost every market in the coming quarter. We expect growth in more suburban markets, because there is more room to grow. Market expectations for suburban markets are; the same=33.3%,up=63.9% and down=2.8%.

However, we don’t expect huge growth. We think U.S. absorption will be higher than 7 million square feet in Q2  but won’t break 10 million square feet in a quarter until 2013.

Stay tuned for our 1Q-2012 National Office Highlights Report.

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