The US office market absorbed 13m square feet during the final quarter of 2013, according to Jones Lang LaSalle ‘s National Office Market Report.
This is the highest level recorded since 2007, and a 24.5 percent increase on the highest quarterly net absorption over the past six years.
An estimated 40 million square feet of positive net absorption was recorded for 2013 – a marked increase over the 28.2m square feet of occupancy gains across the national office market in 2012.
Central Business Districts across the country fared better than suburban commercial property areas, with a 13.9 percent vacancy rate in Q4 2013 compared to 18.2 percent in the suburbs. Jones Lang LaSalle’s report shows vacancy rates dropped in 16.6 overall in the past 12 months – a noted fall on every front.
“These findings show a cohesive, across-the-board tightening in fundamentals, an uptick in overall activity and broadening recovery,” said John Sikaitis, Managing Director Local Markets and Office Research with Jones Lang LaSalle. “After five years of recovery defined by geographic and industry segmentation, increased leasing, touring and absorption helped supply and demand metrics align for the overall national office market in 2013.”
This progressive shift towards a more stable office market has seen landlord confidence improve dramatically and, for the 12th consecutive quarter, seen an increase in asking rents and decreased concessions across a range of markets.
According to the report, 76 percent of the national office market showed higher rents of an average of 0.4 percent in the last three months of 2013 alone and ended out the year some 3.5 percent higher then where they started.
This return to confidence means the outlook for economic prospects in 2014 is bright. Riding this wave of confidence should push leverage in landlord’ favor until additional supply hits in mid-2015 into 2016. Growth across a number of industries should benefit the diverse economies of cities like Atlanta, Chicago, Dallas, Los Angeles, Philadelphia, and Phoenix.
Jones Lang LaSalle’s office market highlights for the year included:
- New York and Washington, DC, the two largest office markets in the US, accounted for more than five million square feet of net absorption – well over a third of national absorption gains between October and December and pushing the previously-dominant tech and energy markets into second place. The strong year-end showing reversed the previous four-quarter trend where more than five million square feet was returned to the market.
- Throughout 2013, Texas stood out as the beacon of growth with Austin, Dallas, Houston and San Antonio posting 8.4 million square feet of net absorption – some 2.2 percent of overall inventory levels and double the rate of national growth over the past 12 months.
- Technology-driven markets continued to gain speed with Northern California tech hubs, the Pacific Northwest, Cambridge near Boston and New York’s Midtown South regions recording 7.6 million square feet of net absorption for the year or 1.8 percent of total inventory levels.
Sikaitis’ predictions for 2014 include: “What we will see over the next five to 10 years is that Millennials will replace the Baby Boomer generation as the stewards of the office market. That has a huge impact on where Millennials go, how they want to be, how they want to work and it’s making some of the market challenged . . . It makes buildings without a sense of place, without amenities, without transit, without a story probably a bit more challenged than what they’ve experienced over the past 20 years.”
About Jones Lang LaSalle
Jones Lang LaSalle (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual revenue of $3.9 billion, Jones Lang LaSalle operates in 70 countries from more than 1,000 locations worldwide. On behalf of its clients, the firm provides management and real estate outsourcing services to a property portfolio of 2.6 billion square feet and completed $63 billion in sales, acquisitions and finance transactions in 2012. Its investment management business, LaSalle Investment Management, has $46.7 billion of real estate assets under management.