Analysts See Moderate Office Sector Growth

Commercial real estate analysts and brokers expect moderate office sector growth this year, said Transwestern Commercial Services, Houston.

“While political turmoil, upcoming elections and an elevated construction pipeline in select regions do raise some concerns, cautious expansion is expected in U.S. commercial real estate markets,” said Elizabeth Norton, Managing Research Director for Transwestern. “Medical office is helping to bolster the office sector, which nears flatter conditions.”

Transwestern asked brokers and analysts in 43 North American offices for their office sector insights. The firm’s index averaged 106.9 for 2020 office market conditions, signaling expansion above the 100 “neutral zone,” which would indicate flat expected conditions. The index is down from 111.2 one year ago.

Slightly more than half the people Transwestern surveyed said they believe office asking rents will be slightly to significantly higher in 2020, elevated by new deliveries.

Transwestern respondents said they expect leasing velocity and tenant prospects will be flat this year as tenants now require more time to finalize decision processes. Tenant densification also factors into slow office growth expectations, the report said.

Office subsector medical office buildings could “handsomely outperform” this year, Norton said. Transwestern’s forecast index averaged 134.2 for MOBs. But respondents noted some concern around growing costs to build out medical space, as well as healthcare regulations, which could impact how medical office is utilized.

CBRE, Los Angeles, said tech hubs, business-friendly Texas cities and high-growth southeastern metro areas top the ranks of U.S. markets set to expand their base of office-using jobs the fastest in the coming years.

CBRE Econometric Advisors identified which markets are likely to generate the largest percentage growth in office-using services jobs such as tech, professional and business services, legal and others this year. It found job growth in tech markets continues to defy high costs and tight labor supplies. Meanwhile, the relatively lower cost of living and strong growth of Texas and various southeastern cities continue to stoke job gains.

“U.S. consumer confidence and spending remain healthy, supported by a strong stock market and high home values, which underpins most U.S. economic expansion and job growth,” said CBRE Americas Head of Office Research Ian Anderson. “Due at least partly to that, we should see another year of strong office demand and growing rents in many U.S. markets.”