‘Solid’ Second Quarter for Offices as Jobs Grow

U.S. office markets posted “solid” performance in the second quarter with steady leasing volumes, healthy absorption and rising asking rents.

CBRE, Los Angeles, reported net absorption more than doubled both quarter-over-quarter and year-over-year to 15.5 million square feet–the highest total since late 2015. More than three-quarters of the markets CBRE tracks registered positive absorption in the quarter, up from 65 percent of markets in early 2018.

Construction completions exceeded 10 million square feet for the eighth consecutive quarter at 11.1 million square feet, CBRE said. Nearly 60 percent of the space delivered pre-leased, reflecting strong tenant demand for quality space.

Cushman & Wakefield Economist and Americas Head of Forecasting Rebecca Rockey noted growth in office-using jobs is creating demand for commercial office space. “Computer/mathematic-related occupations have been the number one driver of office-using job growth this cycle,” she said. “Absorption rates are positively correlated to growth in computer/math occupations–greater growth in computer/math occupations is associated with higher relative demand.”

Rockey said the technology industry has played an increasingly important role in office leasing since 2010. “Currently, about 20 to 25 percent of all new leasing is coming from technology firms. What has become apparent, however, is that STEM-related occupations–those related to science, technology, engineering and mathematics–are being created at much higher rates than are jobs in all office-using industries.”

There are presently 4.1 million computer and 167,000 mathematics occupations in the U.S. Combined, this category added one million new jobs between 2010 and 2017, and 85 percent were in office-using industries, making it the largest occupational category driving the growth of new office-using jobs in the current expansion, Rockey said.

“An increasing share of demand for office space is correlated with a higher rate of growth in computer/math occupations,” Rockey said. Charlotte, N.C. and San Francisco saw “unprecedented” growth in such occupations, with compound annual growth rates of 9.9 percent and 9.2 percent, respectively, she said. In contrast, St. Louis’s growth rate averaged only 1.3 percent annually, followed by Los Angeles (1.4 percent), Washington, D.C. (1.5 percent) and Boston-Cambridge (1.6 percent).

The tech-dominated western region once again registered the strongest leasing volume and absorption, Cushman & Wakefield reported. New leasing volume totaled 27.3 million square feet in the region, nearly 40 percent of all leasing nationwide though the region has less than 28 percent of national inventory. Nearly 4.2 million square feet of space was absorbed in the western U.S. and the top two markets nationwide in terms of absorption were in the region–San Francisco with 1.3 million square feet and Denver with 1.1 million square feet.