NEW YORK CITY-Although more dependent on high-level job creation than virtually any other CRE sector, recovery in office nationwide is keeping pace, according to reports from Cushman & Wakefield and Cassidy Turley. Both firms noted that the fourth quarter of 2013 saw a marked pickup in activity.
New leasing activity in US office markets rebounded in Q4 with 19.5 million square feet, the highest quarterly jump in a year, says C&W. In all, CBD leasing activity for ’13 totaled 68.1 million square feet in CBDs and 137.8 million in suburban markets, the firm says.
Given its concentration of office space, it stands to reason that Midtown Manhattan would lead the way in Q4, and so it did. C&W said the submarket generated 4.5 million square feet of leasing during the quarter, with four other CBDs nationwide surpassing one million square feet: Lower Manhattan with 1.8 million square feet; Chicago, 1.3 million square feet; Boston, 1.2 million; and San Francisco, 1.2 million. The latter set a new record for the year: 7.2 million square feet, up sharply from its 10-year rolling average of 5.8 million square feet.
“The technology and energy markets remain strong,” says Maria Sicola, executive managing director and head of Americas research for C&W. “San Francisco, Boston, Houston and Denver are the markets that are seeing quite a bit of the activity and remain resilient. It’s a great start for those markets, but the other, more pressing factor is going to be other industries recovering and expanding beyond technology and energy.”
The overall vacancy rate for US CBDs changed little year-over-year, rising from 13.1% in Q4 2012 to 13.5% in the most recent quarter quarter of 2013. The quarterly change was even less, rising 0.1 percentage points from the third quarter of 2013. Seventeen US CBDs saw a drop in vacancy for the quarter, led by Hartford, CT with a 7.03% decline.
CT’s National Office Report for Q4 notes that US office markets absorbed 15.6 million square feet during the quarter, up from the 15.3 million square feet absorbed in Q3. The 12-month absorption total also showed a slight improvement over the year prior: 51.6 million square feet for the year, compared to 50.1 million square feet in ’12.
“Although the market fundamentals continue to slowly tighten, this is occurring at a much slower rate than in past recoveries,” according to CT’s report. “Job growth is no longer the issue. For instance, office-using job growth in ‘13 was roughly the same as job growth in 2005 (real estate boom year), but net absorption in 2013 was 37 million square feet less.”
Further, CT says it’s becoming clearer that the current recovery’s subpar demand “directly reflects a shift in the way businesses are utilizing space (e.g., more people in less space, shared workstations, encouraging telecommuting). In our view, this is a trend that will continue into the foreseeable future, and one which will keep net growth in the office sector well below what one would normally expect during a recovery.”
C7W notes that construction in US CBDs saw 6.4 million square feet added in ’13, including two million square feet completed in Lower Manhattan. Only six markets saw construction activity in their CBDs last year, but an additional 12.8 million square feet is expected to be completed over the next two years, with Downtown Manhattan and suburban Silicon Valley contributing nearly half the two-year total. Both will see about three million square feet added this year.