Colliers: Office Demand Remains Solid

Office market fundamentals continued to improve into mid-year 2016 in the largest 10 office markets, reported Colliers International, New York.

“Renewed job growth helped to fuel optimism for office space demand,” Colliers’ Top 10 Office Metros Snapshot report said.

Vacancy rates fell or remained flat in eight of the top markets, Colliers said. The overall vacancy rate for these markets held steady quarter-over-quarter at 11.5 percent, down 30 basis points from a year ago.

An “exceptionally strong” job creation report from the Bureau of Labor Statistics showed 287,000 new payroll jobs created in June, “a very welcome rebound from the anemic 11,000 jobs [created] in May,” Colliers said. Absorption showed steady increase in the second quarter with nine of the 10 markets recording positive figures.

Colliers called Manhattan the healthiest office market nationwide, as asking rents increased for the 13th consecutive quarter. “Availability rate was stable as significant blocks of space were added to the market, especially in Midtown,” the report said. 

Vacancy rates decreased 20 basis points and asking rents continued to increase in greater Los Angeles, the second-strongest market. “Trends in the Los Angeles market continue to move in a positive direction,” the report said.

The Washington, D.C. area represents the third-best office market, Colliers reported. “The theme of Class B property renovation/redevelopment into Class A assets continues to be strong, particularly in the District proper, where many of these redevelopments are done on spec,” the report said. But Colliers noted uncertainty about what a new Congress and administration will look like after the fall elections, which makes forecasting Washington, D.C. commercial particularly difficult.

Chicago and Atlanta round out the top five markets, Colliers said. 

“Areas with a strong new tech presence continued to see heightened competition for space as the shrinking supply of creative-type office space pushes asking rents ever higher,” the report said. “Firms must expand beyond the traditional clusters of tech-centric submarkets to find suitable expansion options as heavy demand has far outpaced supply. A prime example is in Boston [ranked No. 8], where the tight Cambridge submarket helped give rise to growth in the Seaport.”

Asking rents rose in the core areas of eight of the 10 markets, Colliers said. “[But] Houston continues to be the exception due to the volatility of energy prices,” the report said. “Firms there are waiting for profitable conditions to resume prior to hiring, which will ease some of the downward pressure on rents caused by the growing sublease supply.”

Colliers noted that though the second-quarter GDP estimate of 1.2 percent fell well below expectations and the previous quarter’s figure fell to 0.8 percent, this slowing of broader economic growth has yet to negatively affect the office market. “While a September interest rate raise by the Fed looks less likely now, regardless, the magnitude and pace of near-term hikes will not be material to the U.S. office sector,” the report said.