Limited Construction Is Behind Office Recovery

Marcus & Millichap is based in Los Angeles.

LOS ANGELES—Limited office construction is helping to fuel recovery in the office market, according to Marcus & Millichap executives on a recent office and industrial webcast roundtable. With high demand and no new construction, office market vacancies have been pushed down allowing for rental growth and recovery from the downturn.

“A keystone in the market has been limited construction. Completions are still only at about two-thirds of where they were prior to the recession,” John Chang, FVP of research at Marcus & Millichap, said at the roundtable. “Looking at 2015 and the last two years, they have been half or even lower than historical completion levels. That has given this sector a great opportunity to recover from the weakening in the recession and drive vacancy rates back down. At this point, we are seeing vacancies at 14.5% and that is really starting to help support rent growth. We are seeing this momentum build as we tighten those vacancies.”