Top U.S. CBDs See Steady Office Market Gains In Third Quarter, Despite Economic Slowdown

Colliers International outlook report finds that Q3 vacancy rates have declined, while the office construction pipeline has increased

Leading global commercial real estate services firm Colliers International Group Inc. (NASDAQ:CIGI, TSX:CIG) released the 2015 Q3 U.S. Office Market Outlook which concludes that the market remains strong and is steadily growing regardless of uneven economic growth. Factors influencing the economy in Q3 included firms cutting back on their production to shrink bloated inventories, while the strength of the dollar reduced exports. Colliers views these factors as largely temporary drags on our economy, and early signs point to renewed strength heading into 2016.

“We anticipate positive momentum in Q4, particularly with the renewed strength in job growth creating added demand in the office sector,” said Cynthia Foster, President of National Office Services, Colliers International. “Overall, third quarter market health is encouraging as the national vacancy rate declined 30 basis points, a full 70 basis points lower than a year prior. The majority of markets are enjoying this growth, with only 20 percent of metro areas seeing rising vacancies.”

Other key findings include:

  • Strong Class A asking rents. Class A asking rents remain robust in both CBD ($48.62) and suburban ($28.59) areas of the U.S., with gains of 6.8 percent and 3.5 percent, respectively, year-over-year. The largest gains from last year were seen in the San Francisco Bay area, where competition for space remains fierce.
  • Slowly increasing office construction pipeline. The office construction pipeline increased slightly from Q2, with 105.9 million square feet—and the top seven markets account for nearly half of that total (50.7 million square feet). New York (11.2 million square feet) is leading the activity, followed by Houston (10.8 million square feet), Seattle (8.6 million square feet) and Silicon Valley (6.7 million square feet).
  • High demand for office property. Demand for U.S. office properties from both domestic and foreign investors continues to be vigorous, though the strengthening dollar may be reducing off-shore demand. Lower yields in core gateway markets have deterred some buyers, who are seeking opportunities in secondary and suburban markets as the U.S. continues to be seen as the safe harbor amid uncertainty in Europe and Asia.
  • Continued strong absorption, with secondary markets flourishing. National office absorption remained strong in Q3 totaling 26.2 million square feet, a 3.1 million square foot gain .over the prior quarter. Colliers anticipates further declines in vacancy with an uptick in asking rents for the next several quarters. In secondary markets, leasing will continue to outpace that of many top-tier markets.