Amid a surge in new supply, vacancy increases in many major U.S. office markets are slowing price hikes, according to Cushman & Wakefield, a real estate services firm. Nationally, average asking rents for office space rose 1.8 percent between the first quarter of 2016 and the same time period in 2017, the slowest annual rate of growth since 2011, according to data firm Reis Inc.
The office market is not expanding at a rate in line with the rest of the economy, partially because tenants are learning to use space more efficiently, industry insiders note. "The office market has yet to see a bounce or accelerating growth in this recovery, and few signs suggest it will do so this deep into the expansion," Reis Inc. researchers note. Further, rents and occupancy rates in some of the top markets in the U.S. are seeing added pressure from an increase in supply. Therefore, investors who paid top dollar for office properties in recent years are not seeing the income growth they had originally expected.
Rent increases through 2020 are predicted to be about 3 percent to 4 percent annually, according to Green Street, which recently revised its projections to the lower percentages. Still, the office sector is considered relatively healthy, even if prices aren't surging. Companies are still showing strong demand and are increasing employment.
Source: “Office Market Swings in Tenants’ Favor,” The Wall Street Journal (April 18, 2017) [Log-in required]
