by Brianna Crandall — June 26, 2019 — A new national office property report from commercial real estate intelligence source Yardi Matrix illustrates that brisk absorption of new supply is driving increases in asking prices for office rents and keeping the vacancy rate steady.
The strength of office rents across the United States reflects “the continued health of the economy and the growth of the technology, health care and coworking segments,” according to the report. Among those markets with the largest increases, most have added listings of new Class A buildings with attractive amenity packages and the most up-to-date technology in recent months.
A full 19 of the 25 major markets covered in the report saw gains in asking rents over the past three months, led markets “with a healthy dose of New Economy and technology tenants,” namely Austin (9.1%), Brooklyn (8.6%), the Bay Area (6.5%) and San Francisco (4.0%). But smaller markets have also seen “decent” rental rate growth in the last few months, notes the report, including Tampa (3.5%) and Nashville (3.2%).
Six of the major markets indicated declines in office rents, but Chicago and Seattle were the only metros with declines of more than 1%. In the case of Seattle, the decline likely reflects a “temporary dip due to new supply,” according to the report, but Chicago’s decline is considered “slightly more worrisome” from the real estate viewpoint.
Asking rents stood at $36.40 per square foot nationally in April 2019, a 1.1% increase over the previous three-month period. The vacancy rate was unchanged at 13.7%.
Some 14.4 million square feet of office space came online through April, with Class A space accounting for about 90% of that total (13.0 million sq. ft.). Although it may change by the end of the year, so far in 2019 suburban construction has outpaced that in central business districts (CBDs) compared to last year.
According to the report, office-using employment growth continues to outpace all job growth, growing by 1.9% year-over-year through April, or 15 basis points higher than the increase in all US jobs. The metro markets with the most growth in office-using jobs have in general seen “strong levels of absorption and recent increases in asking rents.”
Orlando, which at 5.9% led all metros in the rate of growth in office-using employment, experienced a 1.9% rise in asking rents over the last three months. Similar examples are San Francisco, with a 4.7% growth in office-using jobs and 4.0% increase in asking rents; Tampa (4.1% and 3.5%), Austin (3.7% and 9.1%), the Bay Area (3.5% and 6.5%) and Charlotte (3.3% and 2.1%).
Office property transactions valued at $19.8 billion closed in the first four months of the year.
For the complete findings and charts of the rates in all the metro areas surveyed, view the full Yardi Matrix National Office Report for May 2019.
Yardi Matrix offers a comprehensive market intelligence tool for investment professionals, equity investors, lenders and property managers who underwrite and manage investments in commercial real estate. Yardi Matrix covers multifamily, industrial, office and self-storage property types.
Yardi develops and supports investment and property management software for all types and sizes of real estate companies. Established in 1984, Yardi is based in Santa Barbara, CA, and serves clients worldwide.