by Brianna Crandall — April 30, 2014—First-quarter (Q1) occupancy gains in the U.S. office sector increased 133% year over year, according to commercial real estate services firm Cushman and Wakefield. Maria T. Sicola, head of C&W Research for the Americas, noted that her team’s findings also reflect positive movement in vacancies, and asking rentals and healthy leasing volume.
“The big story for the first quarter is the market’s 9.7 million sq. ft. in positive absorption, which compares to 4.2 million sq. ft. of gains last year at this time,” Sicola said. “Many markets with negative absorption at the start of 2013 turned around to positive gains to kick off 2014.”
Of the 44 major office markets tracked by Cushman and Wakefield, the leaders in Q1 occupancy gains included Midtown South New York (1.7 million sq. ft.), Chicago (1.4 million sq. ft.), San Francisco (1.2 million sq. ft.) and Midtown New York (1.0 million sq. ft.). Houston recorded the highest year-over-year increase, with nearly 1.0 million sq. ft. of positive absorption, compared to 36,000 sq. ft. one year ago.
Overall vacancy ticked down 0.2 percentage points year over year, to 15.6% at the end of March. Gateway markets including New York, San Francisco and Boston led the United States with the lowest vacancy including two submarkets with single digits — Midtown South New York and San Francisco, at 7.9% and 9.8%, respectively. Other tech and energy markets including Houston, Denver and Portland reported low vacancy rates. In terms of momentum, previous housing-boom markets, including Florida and Phoenix, posted the largest decline in vacancy rates year over year, as those economies are improving, according to the team’s findings.
“The positive momentum in office absorption and vacancies stems from an improving national economy,” Sicola said. “Strong job gains are translating directly into healthy leasing activity, as 48.3 million sq. ft. was leased so far this year.” Markets with the highest leasing volume included Midtown New York (5.2 million sq. ft.), Suburban Dallas (3.5 million sq. ft.) and Los Angeles Metro (2.6 million sq. ft.). Midtown South New York increased the most, with a 186% jump to 2.5 million sq. ft. leased.
The first quarter also saw some significant movement in rents, especially in energy and technology markets, according to Sicola. Direct Class A asking rents in Houston’s central business district (CBD) had the greatest increase quarter over quarter, jumping 9.1% to $41.98 per square foot, followed by San Francisco, which rose 3.8% to $60.20/sq. ft. In the suburban submarkets, Portland, Oregon, and Oakland, California, increased the most during the first quarter: 8.1% and 8.0%, respectively, to $23.78 and $31.73/sq. ft., respectively. Year over year, Downtown New York rent increased 17.8% to $54.67/sq. ft., and Silicon Valley increased 9.8% to $35.02/sq. ft.
“We like what we are seeing in the office market to date in 2014,” Sicola noted. “Looking ahead, barring any unforeseen economic or geopolitical events, we anticipate continued progress as U.S. businesses continue to expand and invest in private-sector jobs.”
Commercial real estate services firm Cushman and Wakefield performs rigorous, property-oriented research and data-driven analysis on a global basis. The group collects data from publicly available sources, owners, agents and, most importantly, from the firm’s brokers, appraisers and property managers. The U.S. Research team includes 75 professionals across 42+ markets, as well as 41 Alliance Partner firms that provide statistics in 35 additional markets.
