NEW YORK CITY—For all the steady improvement that the US office sector has seen in the past few years, it finished the fourth quarter of 2016 with a vacancy rate of 12.3%. That's just 10 basis points above the low of 12.2% seen in 2007, according to Colliers International's new Office Market Outlook report.

“While class A rents in most markets are holding firm or growing at a reduced pace, tenant incentive packages are increasing in some locations where vacant new supply is being added or occupiers are moving out,” writes Stephen Newbold, national director of office research | USA and author of the report. He tells GlobeSt.com that “on a national basis, I think vacancy has pretty much plateaued,” and he sees little change, at least in the current year.

That being said, the office story has been one of steady improvement. The Colliers report notes that almost 75% of the metro office markets tracked by the firm saw an increase in asking rents and a decline in vacancies last year. Just over 60% experienced positive net absorption.

A possible spur to further improvement may be the policies of the Trump administration. These include a planned stimulus package of infrastructure spending and tax cuts, along with regulatory rollbacks in the financial and pharmaceutical sectors, which could boost employment and therefore leasing among those office-using employers.

However, Newbold cautions, “There's going to be a lead-in time” before the effects of these policies are felt. For one thing, none of these potential spurs to office leasing have been enacted as yet. When they are, says Newbold, “There could be a boost, but you're looking at the fourth quarter of 2017 at the earliest.”

As it stands, suburban markets are leading the way in terms of absorption, driven by large build-to-suit campuses and new urban environments that compete with traditional downtown locations. In the report, Newbold writes that although office tenants are not abandoning downtowns, “the desire to be located near highly-qualified, young professionals who prefer urban living must be balanced against the limited availability of large blocks of space.”

Construction activity in the office sector remains elevated, but Newbold notes that most of the space being added is pre-leased. Much of the current delivery pipeline will empty out over the course of this year.

There is some speculative development occurring in select pockets of downtown/urban fringe markets where there is a perceived shortage of modern, prime assets, and Newbold writes that this may put pressure on rents in some markets, notably San Francisco, Seattle and Washington, DC.

The report cites no fewer than nine spec projects across those three markets, totaling 2.8 million square feet, that are set to deliver this year. Almost 60% of that 2.8-million-square-foot aggregate of new space is uncommitted.

For instance, Salesforce Tower in downtown San Francisco, which will be the city's tallest at 1,070 feet, is scheduled to be completed in '17. Although Salesforce pre-leased half of the space, 555,000 square feet, or 40% of the total, has yet to be spoken for. On the whole, though, “I believe supply and demand will remain in balance,” Newbold says.

Instant Insights /

Office Growth Slows, But Continues Nationally

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