David Larkin is a director at GRS Title. He can be reached at 973.362.4539 or via email at email@example.com
The office market continued to strengthen across the country improving in most major markets, despite concern of hiccups in the economy that could eventually impact commercial real estate. However, interest rates don’t seem to be increasing again soon, unemployment remains extremely low, and corporate earnings are strong.
As a result, the office sector had another strong first quarter, according to a Newmark Knight Frank report.
Nationwide vacancy is currently at 13 percent, down 30 basis points from the same year-ago period, and that is with the delivery of 6.8 million square feet of new offices during the first quarter. Manhattan, the country’s largest single office market, sported a seven percent rate. The Silicon Valley had the largest decline in vacancy – 350 basis points – bringing it down to 10.6 percent. Nashville, Orlando and Salt Lake City were among the metros with vacancy below eight percent.
Development continues to be strong, with a current pipeline of 88.1 million square feet in the United States, but that is considered tempered, as it is only 1.8 percent of the country’s total inventory. Under two percent is considered manageable, according to Newmark, and cities that are over that threshold include Salt Lake City, Seattle and the Silicon Valley, all above four percent.
Some of the biggest projects in the works are One Manhattan West, a 995-foot tower at 400 W. 33rd St., in the Hudson Yards development; and the one-million-square-foot 1001 Church Street, in Nashville’s Nashville Yards multi-use scheme.
Meanwhile, rents are still increasing, though not as fast as some prior quarters. The first quarter ended with a 3.2-percent year-over-year rise, hitting $28.69 per square foot. But some markets are seeing much higher individual rent increases, including Denver, up 9.8 percent; Boston, up 8.9 percent; and Seattle, rising 7.7 percent. Manhattan had the highest rent, at $76.13 per square foot, followed by San Francisco, at $62.95.
Absorption is the only major category that did not see a year-on-year improvement, at 6.2 million square feet, down from 10.8 million square feet during 2018’s first quarter. Part of that had to do with Manhattan and San Francisco, which both saw negative absorption of one million square feet each. Phoenix had the highest space absorption, at 1.9 million square feet, followed by Washington, D.C.’s 1.1 million square feet. Charlotte, N.C., has seen positive absorption in 34 of the last 35 quarters.
It looks like one of the next steps, according to Newmark, is to see if office owners are able to convert older properties into technologically updated, sustainable assets that today’s tenants seek.
About GRS Group
GRS Group is a leading provider of commercial real estate (“CRE”) services worldwide. With offices across the United States, Europe, and affiliates around the globe, GRS Group provides local market knowledge with a global perspective for institutional real estate investors, occupiers and lenders worldwide. The GRS Group team has evaluated and advised on over $1 trillion in CRE transactions.
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