CHICAGO—Economic growth may have gotten a little uneven, but the US office market seems poised for more steady growth in 2016, according to a report on market conditions just released by Colliers International Group Inc. The 2015 Q3 US Office Market Outlook notes that some firms did cut back on production to shrink bloated inventories, and the strength of the dollar reduced exports. But Colliers considers these factors as no more than temporary drags on the economy.

"We anticipate positive momentum in Q4, particularly with the renewed strength in job growth creating added demand in the office sector," said Cynthia Foster, president of national office services at Colliers, in a prepared statement. GlobeSt.com will provide a more in-depth discussion of the report later this week. "Overall, third quarter market health is encouraging as the national vacancy rate declined 30 bps, a full 70 bps lower than a year prior. The majority of markets are enjoying this growth, with only 20% of metro areas seeing rising vacancies."

The researchers found that class A properties in both CBDs and suburbs were doing quite well. Asking rents saw gains of 6.8% and 3.5%, respectively, year-over-year. Offices in the San Francisco Bay area saw the largest gains due to the fierce competition for space in that region.

And office developers now have 105.9 million square feet in the construction pipeline, a slight increase from the second quarter. But the top seven markets account for 50.7 million square feet, or nearly half of that total. New York leads the way with 11.2 million square feet followed by Houston with 10.8 million, Seattle with 8.6 million and Silicon Valley with 6.7 million.

The office market's robust health has certainly held investors' interest. "Demand for US office properties from both domestic and foreign investors continues to be vigorous, though the strengthening dollar may be reducing off-shore demand," the researchers found. "Lower yields in core gateway markets have deterred some buyers, who are seeking opportunities in secondary and suburban markets as the US continues to be seen as the safe harbor amid uncertainty in Europe and Asia."

Overall, Colliers is optimistic about the office economy and its prospects for next year. National office absorption remained strong in the third quarter, totaling 26.2 million square feet, a 3.1 million square foot gain over the second quarter. The company forecasts that vacancy will continue to decline, and asking rents increase, for the next several quarters. Furthermore, it expects that secondary markets will continue to outpace many of the top-tier markets.

Instant Insights /

US Office Construction Pipeline Increases

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