July 12, 2016
Volatility linked to oil prices, global stocks and the recent Brexit sell-off may be causing uncertainty in the market but, according to JLL research, companies are growing and pushing demand in the U.S. office market. JLL’s second quarter U.S. office statistics show that, despite a slow first quarter, U.S. office demand is up nationwide.
Apart from Houston, tenants across markets have largely resumed expansionary leasing as new supply comes online. Expansions increased to comprise nearly 50 percent of total leasing volume in the second quarter. Furthermore, overall occupancy growth has returned to what’s closer to the norm that’s been recorded the past two years.
Rents have grown 14 percent overall since Q1 2010, and 24 percent in CBDs. Currently, several markets are nearing peak pricing, causing rent growth to moderate. That said, landlords are expected to maintain the upper hand in lease negotiations across the majority of markets through 2017. This is especially true for secondary markets where new supply has been significantly limited.
With the exception of Houston, supply constraints continue to plague the U.S. market at large – particularly in millennial-favored markets. Vacancy inched downward to reach 14.6 percent overall – 12.1 percent in CBDs and 16.1 percent in suburban submarkets.
The lowest vacancy markets in the country are:
- San Francisco
- Salt Lake City
Developers broke ground on more than 20 million square feet of projects during the second quarter, bringing the total pipeline to 101 million square feet. However, 65 percent of new development is in just 10 markets, led by New York, Dallas, Washington, DC and Seattle-Bellevue. As a result, rents in Class B properties are getting a boost. Class B properties in high-demand CBDs are posting above average rent growth – especially where new development is limited.
For more information and to download the United States Office First Look Q2 2016, click here.