JLL: Office Outlook Remains Positive

After a shaky start in early 2016, office market fundamentals proved steady with supply and demand moving in lock-step by the end of the first quarter, reported JLL, Chicago.

JLL Director of Office Research Julia Georgules noted that office-market outlooks leading into 2016 called for optimism and stability, but falling oil prices, increasing global economic uncertainty and a resulting stock market decline shifted the global mindset toward caution. “As a result, office market momentum slowed moderately as occupiers more carefully considered expansionary plans,” she said.  

But looking ahead, Georgules said the rest of 2016 should remain largely landlord-favorable as expansionary leases begin to take occupancy across the country. “In short, our outlook for the year remains positive,” she said.

Georgules noted that the office market could change starting next year as markets work to absorb the 80-million-plus square feet of new supply that will deliver over the next two years. “Additionally, as markets move nearer to their inflection points in terms of rental rates and market growth, 2017 will start to see some cooling as markets stabilize-especially in primary markets that performed highly earlier in the expansion,” she said.

JLL’s first-quarter Office Outlook report listed five other key trends to watch across office markets in 2016:

1) At 143.8 million, U.S. employment stands at its highest level ever. Office occupancy growth should continue into 2017 as a result.

2) Technology and financial services firms continue to dominate leasing activity.

3) Despite employment growth, the U.S. office development pipeline of 96.8 million square feet remains lower than previous peaks, which should keep supply balanced in most markets once growth begins to cool.  

4) First-quarter asking rents increased at the highest rate thus far in the cycle–up 3.2 percent in the first quarter. “We expect this to continue, especially in high-demand, low-supply secondary and tertiary markets,” the report said. 

5) Investors are eyeing strong secondary markets more seriously, largely due to their strengthening fundamentals as well as primary markets’ high barriers to entry.