U.S. Office Real Estate recovery will continue Next Year
The U.S. office market vacancy rate will continue to decline moderately next year, falling to 14.9% by the end of 2013, according to a new analysis from CBRE Group, Inc.
Improvement in office market will begin to accelerate in 2014 with the vacancy rate expected to drop to 13.8% by year’s end.
The office vacancy rate in Q3 2012 was 15.5%, down 130 basis points (bps) from its peak of 16.8% in Q2 2010.
“Although concerns remain about the recovery in the face of headwinds both at home and abroad, we have seen consistent improvement in broader markets and believe that the economy is slowly gaining traction,” said Arthur Jones, Senior Managing Economist, CBRE Econometric Advisors “Businesses remain healthy and continue to hire and we have seen significant improvement in the housing market, which should provide the impetus for stronger growth by the middle of 2013. As a result, we expect office fundamentals to continue their slow, but steady, recovery throughout the next year.”
CBRE notes that uncertainty had caused businesses to pull back somewhat over the summer months affecting hiring decisions, but this is starting to reverse. Office-using employment remains below its pre-recession peak, but the gap continues to narrow.
CBRE anticipates that office-using employment will have recovered to its pre-recession peak by the end of 2013, setting the stage for more substantial demand for office space. As a result, CBRE projects that average rents will increase by 3.5% in 2013, before accelerating to 4.4% rent growth in 2014.
“Although the rent cycle has shifted from correction to recovery in most markets, we do not foresee a sustained and broad-based recovery taking hold before 2014 as many markets impacted by the housing crisis continue to lag behind. Once the job market has fully recovered, a more sustained and stable recovery in occupancy and rents should occur,” added Mr. Jones.
CBRE forecasts that the top performing office markets will be those driven by technology and energy. Over the next two years, metro areas with strong concentrations of high-tech firms such as Austin, Boston, and San Francisco will experience solid rent growth. Markets getting a boost from energy-related industries, such as Dallas and Oklahoma City, will also be well-positioned to take advantage of the economic recovery and will be among the top 10 rent growth performers over a two-year horizon.
