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Office Market Recovery Continues In Third Quarter Despite Election Year Jitters

Occupancy, Absorption Levels Hold Serve as Market Indicators Find Recovery Continuing at Slow but Steady Pace

By Randyl Drummer

Demand for office space in the U.S. held steady in the third quarter as leasing activity and absorption of available office space continued to pick up momentum following a lackluster start at the beginning of 2012, CoStar Group reported this week in the company’s Third-Quarter 2012 Office Review & Outlook.

The overall U.S. office vacancy rate edged down and net absorption rose to 15 million square feet during the quarter from 13 million square feet at mid-year 2012. The relatively little new office supply and continued low levels of new office construction supported the balance in supply and demand.

Meanwhile, office tenants continued to enjoy a ‘holiday’ from rent increases as office rents in most market have yet to budge much from their market trough tipping point, according to analysts for Property and Portfolio Research (PPR), CoStar’s analytics and forecasting division.

“The recovery is only one-third of the way there in the office sector, we still have two-thirds to go,” said Walter Page, PPR director of research, office, who was joined by PPR’s Managing Director Hans Nordby and Manager, U.S. Market Research Aaron Jodka, in dissecting the third-quarter numbers for CoStar clients.

If there was a surprise for the quarter it was on the upside. Page said he had expected demand to fall off a bit in the quarter, based on anecdotal reports of companies postponing hiring and expansion decisions due to economic and political uncertainties created by this fall’s hotly contested presidential election and the unresolved budget impasse.

“But it held up, and we expect it to continue to hold,” Page said, buoyed by the improvement in job growth over the last couple of months.

CoStar expects leasing activity to exceed 135 million square feet nationally for the third quarter, eclipsing the 130 million square feet of office space leased during the second quarter.

“We’ve started to see pretty good leasing momentum,” Jodka said. “It was a weak first quarter, but we’ve started to see more decision-making by tenants — not at the rate we would have expected if it were not an election year or if the economy were performing better — but we’re seeing office-using job growth translate into leasing decisions and momentum , and that’s a good sign.”

Energy industry driven metros such as Houston, Dallas and Denver, and even previously challenged growth markets such as Atlanta, have posted solid gains in leasing and absorption, both in the third quarter and year to date, fueled by growth in law firms, consulting, insurance and other typical downtown tenant, Jodka noted.

On the other end, consolidation among pharmaceutical companies and other office tenant downsizings have dampened demand in Northern New Jersey. Absorption remains soft in Los Angeles outside the submarkets dominated by media and entertainment companies.

Read entire Costar article here.

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This entry was posted on October 25, 2012 by in Finance, Market Updates, National, Office and tagged , , , .
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