Report Sees Robust Office Sector Absorption

Despite steadily growing new office supply, robust absorption held the sector’s vacancy rate steady at 13.7 percent in April, said Yardi Matrix, Santa Barbara, Calif.

Transwestern, Houston, reported first-quarter office leasing activity was 1.5 million square feet higher than one year ago but has slowed since 2016.

The Bureau of Labor Statistics said the U.S. economy grew 3.2 percent in the first quarter, the highest first-quarter growth in four years. Employment grew at a healthy pace as the economy added 541,000 jobs through April, boosting office usage.

U.S. office asking rents increased 1.1 percent in April over the previous three-month period to $36.40 per square foot, the Yardi Matrix May National Office Report said. It noted 19 of the 25 largest markets studied saw gains over the last three months; only six declined. A handful of markets, led by Austin, Texas, saw “outsize” asking rents increases, Yardi said.

“Office rents are fairly strong across the board, reflecting the continued health of the economy and the growth of the technology, health care and co-working segments,” Yardi said. “Most of the markets with the largest increases have in recent months added listings of new Class A buildings with attractive amenity packages and the most up-to-date technology.”

In addition to Austin’s 9.1 percent rent growth, Brooklyn, N.Y., saw 8.6 percent rent growth and the San Francisco Bay Area reported 6.5 percent growth. Smaller markets also saw decent rent growth in the last few months, including Tampa, Fla. (3.5 percent) and Nashville, Tenn. (3.2 percent).

“Growth was strongest in markets with a healthy dose of New Economy and technology tenants,” Yardi said.

Only two major metros, Chicago and Seattle, saw declines exceeding one percent, Yardi noted.

Office asset transaction activity also picked up somewhat, Yardi said. Closed deals reached $19.8 billion between January and April, but deal flow remains weak compared to recent years.