The US office market climbed a wall of worry in the first quarter of 2016, racking up solid—though not spectacular—gains despite sagging corporate profits and the shaky global economy.
Tenants absorbed 6.5 million square feet, about one-third of the 18.0 million-square-foot average in each of the prior two quarters. The market was slow to take off in several recent years, however, with first-quarter totals subdued in 2013 and again last year.
Space under construction ended the quarter at 91.9 million square feet, up from 76.5 million square feet a year ago. Manhattan led all markets with 11.4 million square feet in the pipeline, including five of the nation’s six largest projects.
The vacancy rate dropped another 10 basis points to end the quarter at 13.7%, down from 14.4% a year ago. Three of the five markets posting the largest year-over-year vacancy declines were adjacent to more expensive markets: Fairfield County, Connecticut, and Westchester County, New York, outside of Manhattan; and Oakland-East Bay, adjacent to San Francisco and Silicon Valley.
The average asking rent across the U.S. ended the quarter at $29.13/SF full service, jumping 0.6% from the prior quarter and 4.2% from the year-ago quarter. In Silicon Valley, average rent increased 15.8% over the past four quarters, followed by Nashville, Los Angeles and Portland, all with double-digit gains. The average rent in CBD markets increased by 3.4% year-over-year, while the average suburban rent gained 4.6%—a sign of the recovery underway in the nation’s suburbs.
Many expect this expansion cycle to continue, but at a subdued pace… completion of Q2 will be telling as to whether or not the market is following the trend of 2015, or moving in another direction.
