C&W: Office, Industrial Prosper in 3Q
Despite an economic slowdown in some areas of the country, both the industrial and office sectors performed strongly in the third quarter, reported Cushman & Wakfield, New York.
Industrial real estate users absorbed 57.9 million square feet in the quarter, bringing year-to-date occupancy gain to 173.1 million square feet, C&W’s MarketBeat report said. Demand for offices decelerated slightly but remained high enough to yield one of the strongest quarters of this expansion. The U.S. absorbed 17.3 million square feet of office space during the quarter.
“As more Americans found work, new home construction and sales of existing homes have vastly improved,” C&W said. “This bodes well for the industrial sector as a boost in housing typically translates into greater demand for warehouse space to store building materials. Moreover, housing also has a multiplier impact on consumer spending via the wealth effect.”
Cushman and Wakefield deemed the industrial sector positioned for another record-setting year in terms of demand for space. “Significant demand, space absorption and low vacancies continue to put upward pressure on rents in most major industrial hubs,” the report said, noting that a nationwide average vacancy of 7.4 percent reflects that market-level supply pipelines remain below the pace of demand in most markets.
In addition, spending remains solid and job openings healthy, benefitting office property owners. “Of the 5.4 million job openings currently available in August, nearly one-quarter are in office-using industries,” C&W said. “Given that job openings are a harbinger for job creation; this certainly bodes well for future office space demand.”
Office sector demand remained strong enough to offset the limited amount of new office product deliveries, driving vacancy downward slightly to 14.2 percent from 14.4 percent in the second quarter. Real Capital Analytics, New York, said office investment sales through August totaled $94.6 billion, up nearly 30 percent from the same period a year ago.
“Although the economy has seen some turbulence, the U.S. expansion is expected to continue beyond next year, even as the Federal Reserve votes to raise interest rates for the first time in almost 10 years,” C&W said. “Ultimately, economic growth is the most important factor in determining the trajectory of the office sector. Job growth indicators remain robust for office-using industries and strong leasing activity combined with lagging new construction will keep upward pressure on rental rates.”
Fundamentals in both the U.S. economy and the office sector remain strong enough that the six-year long office expansion should continue, C&W predicted.
