Positive Office Absorption Streak Stretches
The U.S. office sector secured its 34th consecutive quarter of positive absorption this year as asking rents trended higher, reported Cushman & Wakefield, New York.
Cushman & Wakefield Americas Head of Research Revathi Greenwood noted new leases for office space totaled 70 million square feet in the first quarter, down 6.3 percent from late 2018, but still positive. “Because absorption tends to vary from quarter to quarter, the first-quarter slowdown is not, by itself, a concern,” she said. “More importantly, the first quarter represents the longest string of positive office absorption in more than two decades.”
Average U.S. office asking rents continue to increase, reaching a record high $31.97 per square foot in the first quarter, Greenwood said. The national average rent has increased nearly 30 percent since hitting a trough in second-quarter 2011.
Nearly nine million square feet of new office space came online through February, with Class A space accounting for nearly all of that total–7.9 million square feet, Yardi Matrix reported in its April National Office Report. “We expect deliveries to pick up as the year progresses,” the report said.
More than 174 million square feet of office space is currently under construction nationwide, Yardi said. Office deliveries have gradually increased since hitting bottom at 30 million square feet in 2011, but growth remains below what came online annually between 2000 and 2009.
Cushman said new office construction remains concentrated in strong markets: Midtown Manhattan led with 14.5 million square feet under construction, followed by Silicon Valley, Calif. with 6.6 million square feet, Austin, Texas with 5.6 million square feet and Chicago with five million square feet.
After a strong fourth quarter, office-using job growth slowed slightly in early 2019, which affected the office market, Cushman said. Employment in office-using industries such as financial services, professional and business services and information technology rose an average of 38,000 per month in the first quarter, the slowest quarter of job growth since first-quarter 2016.
“Looking ahead, U.S. economic activity is expected to remain steady in 2019, which should lead to stronger leasing volume and net absorption as we progress through the year,” said Cushman & Wakefield Principal Economist Ken McCarthy. “Although vacancy may tick up slightly due to the rising volume of construction, asking rents are likely to continue to rise steadily, especially in tighter markets.”
McCarthy said he expects the tech sector will remain the largest lessor of space for the rest of 2019, followed by financial services and coworking.
