The U.S. office market staged a modest comeback in the second quarter, with absorption increasing by 34 percent and rents continuing to surge higher, according to a new report by Colliers International.
Second quarter office absorption totaled 18.3 million square feet (msf), versus 13.7 msf during the first quarter and 27.8 msf during the year-ago period. Despite this healthy increase, second quarter job creation only met expectations with 148,000 jobs per month and "office using" employment continued to slow -- increasing by 1.7 percent over the year compared with a 2.0 percent increase at the close of Q1. Year-to-date absorption currently sits at 32.0 msf.
The Q2 vacancy rate measured 12.26 percent, marginally down from 12.27 percent in the first quarter and down from 13.09 percent in the second quarter of 2006.
"As predicted, demand for office space picked up relative to the first quarter, but is still operating below anticipated levels," says Ross Moore, senior vice president and director of market & economic research at Colliers International. "Of particular concern is the slowdown in office using employment. However, that aside, the story is generally the same -- steady demand, significant increases in rents and a gradual increase in supply."
Rents posted further spikes during the second quarter, with downtown lease rates rising particularly sharply. Downtown asking rents jumped 8.3 percent during the second quarter to reach an average of $46.81 per square foot (psf), unsurprisingly led by Midtown Manhattan. Suburban rents increased 4.5 percent to $27.45 psf. This left downtown rents up 24.7 percent over the year, while suburban rents increased by 10.0 percent.
Fewer markets (7 compared with 10 at the end of Q1) anticipate less demand for space in the coming three months -- while the clear majority have forecasted steady if not rising demand in their market.
As for new construction, completions totaled 17.5 msf during the second quarter, compared with 14.1 msf in Q1; and year-ago completions totaled 14.6 msf. Another 114.9 msf is currently under construction, most of which is anticipated to be completed in the next 18 months. 119.2 msf was under construction at the end of the first quarter, as compared with 85.2 msf in the year-ago quarter.
Downtown Second Quarter 2007 Rents ($PSF):
MARKET RENT
Atlanta, GA 21.80
Bakersfield, CA 17.40
Boise, ID 18.26
Boston, MA 48.70
Charleston, SC 27.75
Charlotte, NC 23.43
Chicago, IL 42.00
Cincinnati, OH 22.34
Cleveland, OH 20.01
Columbia, SC 20.27
Columbus, OH 22.13
Dallas/Ft. Worth, TX 24.50
Denver, CO 25.77
Detroit, MI 22.50
Fresno, CA 27.60
Ft. Lauderdale/Broward
County, FL 31.94
Greenville, SC 18.27
Hartford, CT 24.03
Houston, TX 32.50
Honolulu, HI 34.56
Indianapolis, IN 19.47
Jacksonville, FL 20.00
Kansas City, MO-KS 20.48
Las Vegas, NV 39.60
Los Angeles, CA 35.88
Louisville, KY 19.50
Miami, FL 36.99
Milwaukee, WI 22.00
Minneapolis/St. Paul, MN 26.37
Nashville, TN 20.89
New York, NY - Downtown
Manhattan 53.76
New York, NY - Midtown
Manhattan 92.31
New York, NY - Midtown South
Manhattan 59.36
Oakland, CA 30.48
Orlando, FL 26.86
Philadelphia, PA 24.63
Phoenix, AZ 21.69
Pleasanton/Walnut Creek, CA 27.48
Portland, OR 23.22
Reno, NV 23.52
Sacramento, CA 30.72
San Diego County, CA 34.80
San Francisco, CA 45.86
San Jose/Silicon Valley, CA 32.52
Seattle, WA 32.07
St. Louis, MO 20.58
Tampa Bay, FL 21.26
Washington, DC 47.09
West Palm Beach, FL 37.16
US AVERAGE 46.81
