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NEW YORK CITY — New office product across the United States totaled 13.2 million square feet during the fourth quarter of 2013, outpacing absorption of 9.8 million square feet during the same period, according to Newmark Grubb Knight Frank (NGKF). This broke a string of 10 quarters in which demand exceeded new supply. New York, Washington, D.C., and Houston accounted for half of the new space added in the fourth quarter of 2013.
For the full year, absorption outpaced deliveries 44.2 million square feet to 29.9 million square feet. Annual absorption was strongest in Dallas, Houston, San Jose/Silicon Valley, Orange County, Calif., Manhattan and Atlanta, each absorbing more than 2 million square feet. As a percentage of occupied space, absorption was strongest in San Jose/Silicon Valley at 4.9 percent, followed by Orange County, Calif., Detroit, Westchester County, N.Y., and Columbus, Ohio.
The surge in new deliveries did not reverse the downward trend in overall vacancy, which ended the fourth quarter at 15 percent, tighter by 10 basis points from the third quarter and by 50 basis points from the fourth quarter of 2012. As a result, asking rental rates reached their highest level since the first quarter of 2009, ending the fourth quarter at $26.27 per square foot gross.
“Office rents nationally were up a moderate 3.5 percent for the year,” says Robert Bach, director of research for the Americas with NGKF. “Although no markets saw double-digit gains, a few came close, with Austin, Texas, registering the highest yearly increase at 9.2 percent.” Other markets with gains of at least 5 percent included San Francisco, Boston, Fairfield County, Conn., Oklahoma City and Dallas.
Construction activity ended the quarter at 55.6 million square feet, its highest level since the second quarter of 2009. Manhattan led the way with 8.6 million square feet in the pipeline followed by Houston, Dallas, Washington, D.C., Boston, San Francisco, San Jose/Silicon Valley and Pittsburgh.
“In general, developers and lenders have exercised caution over the past several years, although the recent rise in construction will be something we watch closely,” says Bach. “In 2014, we anticipate the office market will tighten, but not at a rapid pace. Expect vacancy to end the year around 14.5 percent and rental rates to increase by 4 percent.”
The report cites gradual employment growth as the primary driver of market improvement, but cautions that the trend toward greater office space density will continue to dampen overall absorption.
– Staff reports