Cushman & Wakefield: Office Absorption Keeps Up With Construction, Lowering Vacancy Rate
CHICAGO — Net absorption in office markets across the United States exceeded new construction in the fourth quarter of 2018, according to Cushman & Wakefield. This enabled the national office vacancy rate to drop to 13.2 percent.
Nationwide absorption during the fourth quarter totaled 20 million square feet and marked the 33rd consecutive quarter of positive absorption since 2010.
The total volume of space under construction increased slightly to 114.2 million square feet in the fourth quarter, up from 113.2 million in the third quarter. A total of 13.7 million square feet of new office projects delivered in the fourth quarter, bringing the total for 2018 deliveries to 52.7 million square feet, the second-highest amount of new space completed since 2010.
Relative to inventory, the markets with the highest construction figures are San Mateo, Calif.; Austin, Texas; Nashville, Tenn.; Seattle; and Midtown Manhattan.
On the west side
Office markets in the Western United States performed the strongest in 2018 and accounted for 22.6 million square feet of net absorption, the highest volume since 2015. The lowest vacancy rates were seen in tech-driven markets like Seattle (6.2 percent vacancy) and San Francisco (6.4 percent).
According to Cushman & Wakefield, the western region represents roughly 27.8 percent of total office space inventory nationwide, but the region accounted for 37.6 percent of all new leasing activity in 2018.
Rents on the rise
On average, asking rents increased 2.1 percent nationally, and 50 of the 86 markets tracked by the Chicago-based firm experienced rent increases in the fourth quarter. Major markets with the fastest rent growth over the past year included Orange County, Calif.; Midtown South Manhattan; San Francisco/North Bay; Raleigh/Durham, N.C.; and Portland, Ore.
New York City’s tech hub Midtown South bested Midtown Manhattan for the highest asking rent in the nation at $76.82 per square foot.
“Demand has grown for nearly a decade, construction is booming in major tech hubs and rents are on the rise,” says Revathi Greenwood, Americas head of research at Cushman & Wakefield. “Vacancy has been essentially flat over the last year, as job growth and absorption have matched new construction deliveries.”
Cushman & Wakefield tracked 86 markets for its quarterly office report, which was released in mid-January. For most markets, the minimum square footage for an office property to be included was 20,000 square feet.
— Kristin Hiller