Avison Young: Office Sector Improving
The office sector continues to display broad-based improvement, reported Avison Young, Toronto.
“The U.S. office market demonstrated further strengthening during the last four quarters,” said Avison Young Chair and CEO Mark Rose.
Avison Young President of U.S. Operations Earl Webb called relatively strong office sector absorption a “notable indicator of the market’s increasing health.” He noted that the U.S. absorbed 43 million square feet of office space between mid-year 2015 and mid-year 2016.
“During the same period [mid-year 2015 through mid-year 2016], Class A rental rates in downtown markets spiked,” Webb said. He noted that the overall U.S. unemployment rate, a key office-space driver, continues to fall. “We anticipate that favorable leasing fundamentals for the office sector will be ongoing through year-end 2016, and although select markets may experience some delay in office lease executions until after the [presidential] election is decided, this situation should have minimal impact on market conditions into 2017.”
Webb said demand for new, modern office buildings is leading to new development, while the growing presence of co-working options may spur owners of older properties to add social gathering places and tenant-recreation areas to compete for occupiers in this environment.
Developers had 90 million square feet of office space under construction at mid-year, up from 82 million square feet one year ago, Avison Young said. Projects under construction average 50 percent preleasing, highlighting healthy demand for new buildings.
New York has by far the most construction activity with 15.1 million square feet under construction, with 46 percent of that space preleased. Washington, D.C. follows with 11.1 million square feet under construction, 31 percent preleased. Dallas ranked third with 10.2 million square feet under construction, 67 percent of which is preleased. These three markets alone accounted for more than 40 percent of all U.S. development underway at mid-year 2016, Avison Young reported.
“In 2015 we reported a return to more balanced leasing conditions with lower vacancy after several years of absorption and job growth, and the office market remains the strongest we’ve seen since the Great Recession,” Webb said. “For the remainder of 2016, tenants’ need for space efficiencies and flexibility will endure. Nevertheless, we expect this year’s office-leasing levels to be in line with historical averages and, in spite of elevated volumes of construction, no real threat of oversupply.”
