Delta: Office Recovery Taking Hold In Large Metros

The office market’s resurgence may trail other sectors, but recent office market trends show some good news for the nation’s largest metro areas, said Delta Associates, Alexandria, Va.

Delta tracks major U.S. metros’ market position based on eight positions in the market cycle ranging from a vacancy beginning to decrease-rents relatively stable and speculative construction not justified “expansion phase” to a “correction/contraction” phase after absorption, occupancy and speculative construction peaks. Most major U.S. metros remain in the early stages of market expansion, either at position two or three on the eight-point scale.

Boston, Los Angeles and Seattle are further along and poised for stronger growth in the near future, said Delta Associates Senior Vice President David Versel.

“Dallas and San Francisco are both experiencing healthy market expansions,” Versel said. “In Dallas, strong absorption and rising rents are overcoming the high vacancy rate. In San Francisco, very low vacancy and strong rent growth both persist.”

Houston and Philadelphia represent two outliers among major metros, Versel said. “Houston has a very large supply of office space set to come online, but a weakened economy is likely to limit absorption of this new space. Philadelphia has experienced weak rent growth and no pressure for new construction. “

Despite the sluggish economic growth of early 2015, the national economy remains on track for significant improvement through at least 2018, Versel said, noting that employment and gross domestic product growth should continue to gain strength for the next several years. “

Although this economic growth will drive continued improvement in the U.S. office market, not all major metros are likely to share in the good fortune,” Versel said. “Areas that are able to increase their job bases in the professional, scientific and technical services sectors will experience stronger office markets. Conversely, those with job growth in education/health services, leisure/hospitality and other industries that do not generate Class A office demand will struggle.”