WASHINGTON, DC – Demand for office space slowed in the fourth quarter of 2011, but vacancy continued to inch downwards and rents remained steady, according to Cassidy Turley, a leading commercial real estate services provider in the U.S. For the year, the U.S. office sector recorded the strongest level of demand for office space since 2007.
The latest quarterly figures show that net absorption for U.S. office space registered at 11.7 million square feet (msf) in the fourth quarter of 2011, down from 16.1 msf in the previous quarter. This marks the seventh consecutive quarter of positive demand for office space. For all of 2011, the U.S. office sector absorbed 50.4 msf, up from 18.7 msf recorded in 2010. Of the 80 metropolitan statistical areas tracked, 65 registered positive net absorption, compared to only 43 markets last year. The data also shows that the recovery is broad-based, with all four census regions recording a significant upturn in demand for office space in 2011.
“Even after a bumpy, but positive year of business expansion, and by extension, improved occupancy gains, the U.S. office sector is still a solid 12 months away from registering consistent upward movement in rents across the country,” said Kevin Thorpe, Chief Economist, Cassidy Turley. “In most metro areas, vacancy is at least 200 basis points above where it needs to be to trigger sustainable rent growth.”
Total inventory under construction at the end of December was 41.2 msf, up from 38.7 msf registered in the previous quarter. “New supply remains extremely constrained, two-thirds below the norm. Even if 2012 looks the same as 2011 in terms of the economic recovery – meaning only modest demand for office space – most markets will be in a much stronger position to push rents upwards by mid-2013,” Mr. Thorpe said.
Following are key highlights in Cassidy Turley’s U.S. Office Trends Report:
- National office vacancy rates fell 20 basis points (bps) from the previous quarter to 16.1%
- Vacancy has trended downwards for five consecutive quarters, but still remains 200 bps above its 20-year historical average of 14%
- Office rents inched up seven cents in the fourth quarter of 2011 from the previous quarter to $21.50. Rents in the fourth quarter were up 0.8% from a year-ago
- Investment sales volume slipped in November 2011 to $2.9 billion, down 27% from November of 2010 (according to Real Capital Analytics)
- For the year (Jan. – Nov. 2011), office sales volume is up 56% compared to 2010
- National office cap rates inched up 10 bps in November compared to the previous month to 7.4%, but remain 150 bps below the peak of 8.9% in December of 2010
Mr. Thorpe added, “After lagging the national recovery in 2010, technology-driven markets in the West shot out of the gate in 2011. San Jose, Silicon Valley, San Francisco and Seattle were right near the top in demand metrics in 2011, for example. Other notable gains were observed in energy-driven Texas markets and New York City – despite a contracting financial services sector.”
Cassidy Turley’s U.S. Office Trends Report will be available on the company’s website on Friday, January 13, 2012.
About Cassidy Turley
Cassidy Turley is a leading commercial real estate services provider with more than 3,400 professionals in more than 60 offices nationwide. The company represents a wide range of clients—from small businesses to Fortune 500 companies, from local non-profits to major institutions. The firm completed transactions valued at $18 billion in 2010, manages 455 million square feet on behalf of private, institutional and corporate clients and supports more than 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, tenant representation, corporate services, project leasing, property management, project and development services, and research and consulting. In 2010, the firm enhanced its global service delivery outside of North America through its partnership with GVA. Please visit www.cassidyturley.com for more information about Cassidy Turley.