The CCIM Institue has come out with their market analysis of the commercial real estate sector and it calls for very modest growth in the office space sector (full discussion below). Slower employment growth, as would be expected is the main culprit.
"Office Space: Office markets are showing only modest improvement. Office employment has increased 2.2 percent during the past year, compared to average growth of close to 3.0 percent during the past cycle and well over 4.0 percent during second half of the 1990s. Moreover, firms continue to find ways to squeeze more workers into fewer square feet. Even with modest growth, net absorption has risen for five consecutive quarters, but growth is exceptionally modest by past standards. With little new construction, vacancy rates have edged lower, falling 0.4 percentage points over the past year to 17.2 percent, according to Reis.
While the overall market is seeing only modest gains, there are a few pockets of strength. Major technology centers, including the San Francisco Bay Area, Seattle, Austin, and Raleigh, N.C., all continue to see strong demand. Rents have grown the most in the San Francisco Bay Area and New York, which is also increasingly driven by the tech sector.
Despite the sluggish pace of recovery, office property sales have increased this year. Properties in key technology centers, areas with a great deal of exposure to healthcare, and a few major energy markets, such as Houston, continue to outperform most other major markets. New York appears to be successfully navigating the slowdown in the financial services industry and is seeing an influx of technology jobs. Washington, D.C., however, has seen demand for space and buyer interest wane as continued anxiety and uncertainty about the federal budget has sent chills through market. The suburbs of Washington, D.C., are faring better with the tech sector fueling gains in northern Virginia and healthcare driving gains in suburban Maryland and Baltimore."
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Over the past week we have tweeted quite a few times on the improving office space market. While we all like to hear news of an improving economy, what good news for the office space market means is that the office space market is in the process of beginning its transition from a tenant market to a landlord market. As has happened with economy in general (and will hopefully continue), this process will take a couple of years for the transformation to complete. The process will not be even from market to market, but we will see markets such as New York, Washington DC and San Francisco lead the way in declining vacancy and increasing rental rates. As employment continues to improve other primary and secondary markets will follow. The general consensus is that this will take a couple of years to happen, but most are in agreement that most markets have hit bottom and rental rates will begin to climb.
For tenants who have been on the fence as to whether or not to renew or relocate their office, now is a good time to get started to ensure a low rental rate for a long-term lease.
Manhattan Office Property Surges Bolstered by a
stronger-than-expected recovery in hiring http://ow.ly/a7NMm
The Jumpstart Our Business Startups (JOBS) Act: What You
Need To Know http://ow.ly/a6Wma
It's slow all over - The US #officespace vacancy rate at the
end of March stood at a whopping 17.2% http://ow.ly/a6DOw
#OfficeSpace lease opportunities to tighten in second half -
Office Rents on teh rise http://ow.ly/a5cxl
Information and media companies pass Wall Street as top
leaser of #officespace in New York as office rents increase http://ow.ly/a3G5t
U.S. #OfficeSpace Sector Records 8th Straight Quarter of
Improving Fundamentals - Asking Rents on the rise http://ow.ly/a3FRc
ULI: Consensus of Economists Sees Promising CRE Outlook
Why Is Your Landlord Sprucing Up Your #Officespace Building?
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The NAR quarterly forecast reports that all commercial real
estate sectors are on the upswing. Their predictions include that the US office
space vacancy will decline by 0.4% to 16% by the 1st quarter 2013. According to
the report, office rents are expected to rise by 1.9 percent this year and 2.4
percent in 2013, with net absorption predicted to hit 20.1 million in 2012 and
28.1 million next year. More...
Washington, DC, currently has the lowest office space vacancy
rate at 9.5%, with New York City in second place at 10% and, surprisingly, New
Orleans at 12.4%. More Office Space Market Information.
What this means to office tenants is that now is the time to
lock in long term rental rates to ensure you benefit from the bottom of the
market. The best way to do so is by engaging the services of an office tenant representative
who can show you how to take advantage of the current low office rental rates.
There is no cost to tenants to obtain the services of a tenant rep, so there
is no reason not to investigate what they can do for you. It is a no lose proposition.
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It looks like the Federal government is embracing
flexible workspace and changes in the workforce by changing how they let their employees work. No
desk, no nameplate, and sometimes even half of the workspace. Federal agencies
are adjusting to "Hot Desking" and "Hoteling." In
doing so, the General Services Administration, is helping to lead a
growing effort to reshape how traditional office space is utilized. The
cost savings are considerable; Up to 50% of the cost the Feds were spending on
office space is now being saved for agencies participating in the program.
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National Office Update & Office Tenant/ User Strategies PodCast
Original Air Date: 4/2/11
Very informative broadcast about the office market and office space strategies for office space tenants.
"The office user show provides a national office market update and best practices for corporate office users. Chris Macke, Senior Real Estate Strategist with CoStar Group provides an update on national office market performance including top cities for investment and markets prime economically for corporate headquarters. He also shares market advice for office users and expectations for 2011 and 2012.
Show host Michael Bull and industry leading guests cover current topics important for office users including strategic lease provisions for tenants, protecting lease rights before foreclosure, prevalent lease situations in this economy and the guests share best practices when renewing leases and securing new locations.
If your company uses office space or you advise companies that do, you will find this show very informative and enlightening."
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