Office vacancy rates declined in most major U.S. markets during Q1 2014, based on preliminary data from CBRE Group, Inc. Eight out of 13 major metro markets saw vacancy fall and average asking rents increase as companies’ appetite for more space grows.
“The U.S. economic recovery is continuing to fuel demand for office space nationally; with relatively little new space coming on the market, landlords are seeing the pendulum of pricing power shift in their direction and are able to raise rents modestly in most major markets,” said Art Jones, CBRE Senior Managing Economist.
In addition to the 1.3 million square feet of build-to-suits under construction across the Valley, there is 405,622 square feet of speculative space currently under construction. Many of these buildings are slated for completion this year and given the high demand for high quality office space, construction will begin on additional projects over the next several quarters.
The U.S. industrial market also had healthy activity in Q1 2014, according to CBRE, with demand for space notably strong in Class A big-box space, driven by e-commerce, logistics and food facility users.
“Industrial fundamentals continue to strengthen on the back of strong economic drivers. With trade, industrial production and private inventories all expanding, early numbers suggest the industrial sector is continuing to recover strongly in Q1 2014,” said Jared Sullivan, CBRE Senior Economist.
U.S. Office Market Highlights:
- Atlanta and Seattle led the way in vacancy declines, each with a vacancy rate drop of 60 basis points (bps) during Q1 2014. Technology firms once again led demand improvements in Seattle as the local economy continued to fire on all cylinders. In Atlanta the story was more broad-based with tech, health care and service firms leading demand.
- Miami also posted a 50 bps fall in its office vacancy rate as scientific; in addition, scientific, research and engineering firms accounted for some of the market’s largest leases signed this quarter.
- Though the Washington, D.C. office market saw vacancy fall by 10 bps, overall demand remained weak as a result of government consolidations and with new deliveries in the offing, landlords will continue to face pressure heading forward.
- Both Boston and Houston saw vacancy increase in Q1 2014, but strong underlying economic growth suggests that this is not representative of trend. Average asking rents increased across eight of 13 markets and concessions held steady.
- Phoenix led the nation with a 3.9% increase in average asking rents, followed by San Francisco at 3.3% as large blocks of space in both markets are in short supply.
- Though office development nationally remains constrained, increased development activity was evident in markets like Houston and San Francisco, which each reported deliveries of approximately 1.2 million sq. ft.