Washington, DC – According to Cassidy Turley, a leading commercial real estate services provider in the U.S., the U.S. office sector continues to rebound.
The U.S. economy absorbed +7.4 million square feet of office space, marking a second straight quarter of improving demand. With office-using employment growing, vacancy rates remained flat at 16.8% for the third straight quarter and rents are showing signs of stabilization.
“The commercial real estate recovery remains intact, but we have a ways to go before national office rents are pushing upwards again,” said Kevin Thorpe, Chief Economist at Cassidy Turley. “Labor markets remain lackluster, but other leading metrics such as rising corporate profits and temporary service hiring suggest more significant job creation and greater office space demand are in the pipeline.”
National office rents for the third quarter of 2010 were $21.25 per square foot, down just 10 cents from the second quarter of 2010. Of the 80 markets tracked in the report, only 21 showed rent increases compared to the previous quarter.
“Rents always lag the recovery,” says Thorpe. “Even with a pickup in the economy, the office market is facing a severe oversupply problem left over from the recession. With the exception of a handful of markets, we are looking at a prolonged low rent environment for at least the next 12 to 18 months.”
DC is one of the stronger performers. In the third quarter of 2010, DC has overtaken New York City for the highest office rents in the country. Average asking rents in DC were $48.96, compared to $48.53 in NYC. Rents in DC rose 3.9% compared to a year-ago; nationally rents fell 1.8%.
“The office sector remains a tale of two markets,” added Thorpe. “Major metros such as DC, NY, Boston, Dallas, and San Francisco are experiencing a tremendous recovery in demand for office space as well as a post-recession surge in sales activity. Meanwhile, the bulk of secondary markets are experiencing only a tepid improvement or negative demand for space. This is standard procedure for a commercial real estate recovery. Major metros typically lead the recovery, and then secondary markets follow suit as the economic expansion gains momentum.”
According to the report, 5.3 million square feet of new space became available to the U.S. office market – a construction pace that rivals the slowdown that followed the crisis of the early 1990s.
The Northeast region recorded +3.1 million square feet of net absorption in the third quarter of 2010 – a third straight quarter of positive demand. Once again, New York City led the way with +3.0 million square feet of net absorption. For the year so far, New York City has absorbed 8.9 million square feet, a pace that rivals the demand that occurred during real estate boom period of 2004 and 2005.
The Midwest continues to lag the nation. In particular, while the U.S. as a whole has added office-using jobs, the East North Central Region (IL, IN, MI, OH, and WI) has experienced office-using job losses since May of 2010. In the third quarter of 2010, net absorption in the Midwest came in at -1.3 million square feet. Despite the overall decline, there are flashes of a healthier recovery taking place in certain pockets within the region. The strongest performers in the third quarter of 2010 included St. Louis (+207,000), Minneapolis (+191,000), and Indianapolis (+105,000). Vacancy in the Midwest rose 50 bps in the third quarter to 19.6%. Asking rents fell 9 cents compared to the previous quarter to $18.49.
The South led all regional markets, recording +4.9 million square feet of net absorption. Leading the way was Washington DC which absorbed +1.4 million square feet of net demand - the second highest quarterly gain on record. The Dallas-Fort Worth metro also posted a huge demand number on the board (+1.3 million square feet) helped by a rebounding global tech sector. Other metros posting notable gains included Charlotte (+618,000), Miami (+419,000), Baltimore (+585,000), Suburban VA (+514,000), and Nashville (+306,000). Vacancy in the South fell 10 bps compared to the previous quarter to 16.2% and asking rents fell 14 cents to $20.63 over the same period.
In the West, net demand registered at +667,000 for the third quarter of 2010. Through the first 9 months of 2010, the West has absorbed +1.6 million square feet, a significant turnaround from the -25 million square feet recorded over the same period one year ago. The strongest performers in office space demand included Oakland East Bay (+708,000), Seattle (+573,000), San Diego (+449,000) and San Francisco (+310,000). Vacancy inched down 10 bps compared to the previous quarter to 16.9% in the third quarter of 2010, and asking rents fell 8 cents to $22.68.
The 3rd Quarter National Office Trends Report also features an up-to-date breakdown of Net Absorption, Office Vacancy Rates, Effective Rents and Inventory chart by region and city.
The full report can be accessed here.
About Cassidy Turley
Cassidy Turley is a leading commercial real estate services provider with over 2,800 professionals in 60 offices nationwide. The firm completed transactions valued over $13 billion in 2009, manages over 420 million square feet on behalf of private, institutional and corporate clients and supports over 25,000 domestic corporate services locations. Cassidy Turley serves owners, investors and occupiers with a full spectrum of integrated commercial real estate services—including capital markets, corporate services, project leasing, property management, project and development services, and tenant representation. Outside of North America, Cassidy Turley has served the international needs of its clients since 1985. In 2010, the firm enhanced its global service delivery through its partnership with GVA Grimley. The firm recently ranked in the Top 10 on the Lipsey Co.’s Commercial Real Estate Top Brands Survey, and was ranked #1 by Real Estate Alert for Office Sales in 3 of the Top 6 Markets. Please visit www.cassidyturley.com for more information about the company.