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Recovering Office Demand Sets Stage For Rent Growth Across The U.S.

2012 Mirrored Every Bit The Sluggish Recovery That CoStar Economists Predicted, But There Were a Few Surprises Along The Way

Tenant demand for office space ended 2012 on a strong note as occupancy gains spread across a broadening array of U.S. markets, opening the door for widespread rental rate increases this year, CoStar Group reported in the company’s Year-End 2012 Office Review & Outlook.

While overall leasing volume appeared to be somewhat lower in 2012 from the previous year, strong absorption and very limited new construction — combined with a significant number of demolitions/removals of antiquated buildings — helped to push the U.S. office vacancy rate down 50 basis points over the past year to 12.3% at the end of fourth-quarter 2012, according to CoStar analysts.

In the fourth quarter, tenants absorbed a net 24 million square feet of space, for a total of 59 million square feet of net absorption for the year. The figure is slightly less than CoStar originally forecast but very strong compared to 2011, which rallied from a very slow first half to post 41 million square feet.

Nearly every U.S. office market enjoyed absorption gains in 2012, with the exception of a few markets with industry-specific or regional economic issues, such as Northern New Jersey, where the pharmaceutical business has been in contraction.

Joining perennially strong markets such as Houston and Dallas-Fort Worth in full recovery were the former housing-bust metros of Phoenix, Atlanta and Orange County, CA, where the local economies have benefited from increased office hiring and a gradually improving housing market.

“Submarkets such as Atlanta’s Buckhead, which were overbuilt, are now seeing increasing occupancies,” said Walter Page, Director of Research – Office, who was joined by Managing Director Hans Nordby and Manager, U.S. Market Research Aaron Jodka in analyzing the fourth-quarter and annual data. “The makings of rent growth are now in place in these markets.”

Absorption numbers show that companies are adjusting their decisions on where to lease space based on local employment, economic and regulatory conditions, Nordby noted.

“The big absorption office markets are energy and tech based, and tend to be in low regulation, low tax states. The markets with the highest regulation and cost structures are the most sclerotic,” he said.

Read more of CoStar article here.

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This entry was posted on January 31, 2013 by in Market Updates, National, Office and tagged , , , .
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