by Brianna Crandall — May 2, 2016 — Vacancy in the U.S. office market inched up by 10 basis points (bps) during the first quarter of 2016 (Q1 2016), rising to 13.2%, according to the latest analysis from global real estate advisor CBRE Group. Even with the increase, the national office vacancy rate remains at the lowest level since 2008.
Despite the slight increase, vacancy continued to improve in the majority of U.S. markets, with rates falling in 33 markets, rising in 25, and remaining unchanged in five. Suburban vacancy remained at 14.7% while downtown vacancy increased by 10 bps, to 10.4%. The overall national office vacancy rate has fallen 70 bps over the past four quarters, according to the report.
Jeffrey Havsy, Americas’ chief economist for CBRE, pointed out:
According to the report, the office market paused in Q1 2016 after several strong quarters as economic uncertainty and market volatility weighed on occupancy decisions. Despite this, demand for space remains healthy fueled by steady job growth, and we expect the market to continue to strengthen at a modest pace the remainder of the year.
Detroit recorded one of the largest quarterly declines of 130 bps, while Nashville, Louisville, Columbus, Cleveland, Milwaukee, San Diego and Seattle declined by 60 bps or more. Overall, markets in California and Southeast saw the greatest improvement in the last four quarters. Among these were San Jose, Nashville, Oakland, Detroit, Jacksonville, Orlando and Atlanta. The nation’s lowest office vacancy rates in Q1 2016 were in San Francisco (6.3%), Nashville (6.6), Austin (7.7%), Albany (8.0%), San Jose and Raleigh (8.7%).
The slight rise in the national office vacancy rate was said to be fueled by significant new supply coming to certain markets including Boston; Washington, DC; Dallas and Orange County. Compounding that issue, Washington had negative absorption and Dallas only modest absorption, trailing this new supply. However, vacancy rates are higher than they were a year ago in just 13 markets — including Houston, Trenton, Newark, Richmond, Pittsburgh and Denver.
Havsy concluded:
We expect the U.S. office market to improve in 2016 as the U.S. economy continues to expand, moving closer to full employment and driving demand for office space. Office demand is expected to outpace new supply in the next two years, further tightening the vacancy rate and keeping rent growth above inflation in a majority of the U.S. office markets.
See the CBRE Research Center for more details.
