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OFFICE MARKET DEMAND ON THE RISE

Posted on by Ingram Hebron

On a Roll, U.S. Office Market Demand Expected to Stay Strong Through 2016

Tenants and Investors Show Strong Preference for Newer Buildings in CBDs
January 28, 2015

With vacancies falling and rents rising in growing numbers of submarkets and slices within the U.S. office sector, demand for office space is expected to remain at post-recession highs for the next two years, according to CoStar Portfolio Strategy analysts recapping the office market’s past year performance.

“2014 was a great year for the office market,” said Walter Page, director of office research, during CoStar’s State of The U.S. Office Market 2014 Review and Forecast. “The keystone mark is that net absorption was up 42% from a year earlier. The fourth quarter in particular was very strong, with over 30 million square feet of net absorption.”

Net absorption of office space rose from 64 million square feet in 2013 to 91 million square feet last year, a 42% increase. Also, the amount of office space absorbed for the year was nearly double the level of new office space added to the market.

Over the next two years, CoStar expects annual absorption to be very similar to 2014, in the 90 million square foot range. The level of construction deliveries should ramp up, as rents have increased across the board and vacancy numbers have continued to tighten, helping make the case for new development.

The strong demand suggests that occupiers have gradually slowed the trend of shrinking square foot-per-employee office footprints, and the shadow supply of empty office space left over from the Great Recession is diminishing as growth moves forward at a very strong clip, added Page, who was joined in the presentation by U.S. Market Research Manager Aaron Jodka and Managing Director Hans Nordby.

The national office vacancy fell 70 basis points from 12% to 11.3% in 2014, the largest decline in office vacancy since the end of the recession.

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Costar.com