WASHINGTON — Office rents in the second quarter of 2015 increased in more than 70 percent of markets in the United States, according to a soon-to-be-released report by global commercial real estate services firm DTZ.
U.S. office rents increased 2.7 percent in the second quarter of this year compared to a year ago, the strongest quarterly gain since peaking in 2008, the report found. Office rents rose in 59 out of the 80 metros tracked, and the construction pipeline continued to expand.
U.S. markets absorbed 20.1 million square feet of office space in the second quarter of 2015, up 15.3 percent from the same quarter one year ago, DTZ has discovered. Demand for office space continues to outpace new development, which pushed vacancy rates down 20 basis points from the first quarter of 2015 to 14.2 percent in the second quarter of 2015.
In the second quarter of 2015, there was 107.7 million square feet of new office construction, up 36 percent compared to the same quarter one year ago.
Of the 80 metropolitan areas tracked by DTZ, 68 of them reported occupancy gains.
“Net absorption is solid and picking up steam, which links directly to office-using job growth and is the strongest it has been in the current cycle,” says Kevin Thorpe, DTZ’s chief economist, Americas. “If you look at the last four quarters, tenant growth is nearing 80 million square feet at an annualized rate, which puts us back in pre-recession territory.
“Deliveries are only a fraction of what is being absorbed,” continues Thorpe. “Although we have more in the pipeline, we expect that the market will continue to tighten over the next two years.”
In terms of rent growth, the top 10 strongest markets were San Francisco, with 13.8 percent year-over-year rental appreciation; Oakland, Calif., with 8.6 percent; Orange County, Calif., with 8.4 percent; San Mateo County, Calif., with 8.1 percent; Nashville, Tenn., with 7.6 percent; Denver, with 7.5 percent; San Diego, with 6.1 percent; Boston, with 5.9 percent; Charlotte, N.C., with 5.7 percent; and Houston, with 5.7 percent.
The top 10 strongest markets in terms of demand for office space in the second quarter of 2015 were San Jose, Calif., with 3.8 million square feet; Dallas, with 1.5 million square feet; Oakland, Calif., with 1.4 million square feet; Los Angeles, with 1.2 million square feet; Atlanta, with 993,000 square feet; Phoenix, with 850,000 square feet; Raleigh-Durham, N.C, with 828,000 square feet; Philadelphia, with 723,000 square feet; New York, with 709,000 square feet; and Chicago, with 525,000 square feet.
— Scott Reid