Part 1 of 2

CALABASAS CA—The latest national office property index report from Marcus & Millichap shows that last year's top market, San Francisco, slipped to the third position on a projected deceleration in job growth but remains one of six Western metros in the top 10. Four markets climbed into the top 10 from one year ago, including Raleigh, which makes its debut this year.

The report also showed that the markets filling out the top half of this year's Index comprise a geographically diverse group. Miami-Dade and Tampa-St. Petersburg are the highest-rated Florida markets, while positive supply-and-demand dynamics enabled Nashville, Atlanta and Charlotte to secure high rankings. In addition, elevated performance allowed Minneapolis-St. Paul to repeat its position as the highest-rated Midwest market.

In addition, Philadelphia leads off the second half of the NOPI and will post subdued job growth in 2017. Speculative construction was a factor in the slight decline in the rankings of Phoenix, the report says. Other markets in the second half of the Index rose behind brighter prospects, including Fort Lauderdale and Detroit.

Over all, the report says that the Trump administration has signaled plans to energize domestic economic growth via infrastructure and defense spending, comprehensive tax reform and deregulation. The Republican-led Congress is likely to favor many of these measures, and the removal of gridlock could also enable quick resolution to the passage of a budget and a higher debt limit.

“Job creation will moderate as the labor market tightens. After adding roughly 2.2 million jobs in 2016, employers will create 2million positions this year. The total includes 690,000 workers in office-using employment sectors and matches last year's pace of growth,” the report says. “Strength in the overall domestic economy, tightening monetary policy and expanding government spending will lift both interest rates and the US dollar.”

The report also says that higher interest rates in the US could attract more foreign investment, but American exports could become more expensive globally, imposing a potential headwind for US manufacturers.

The overview for the national office market showed that net absorption of approximately 83 million square feet will generate a 20-basis-point decline in the US vacancy rate to 14.3%, marking the low point of the current cycle. The reduction in vacancy will spur an increase in the average asking rent of 3.5% the report says.

“This year likely marks the high point in completions for the current cycle, as construction lenders maintain a conservative approach to underwriting office construction. Developers will complete 82 million square feet of space in 2017, exceeding the amount of new space delivered in the preceding year.”

The report showed that the outperformance of CBD properties led the office sector out of the recession, but the suburbs continue to gain ground and make larger contributions to the overall performance of the office sector.

Check back in the next day or so for more from the report and more on capital markets and the investment outlook.

Part 1 of 2

Check back in the next day or so for more from the report and more on capital markets and the investment outlook.

Instant Insights /

Geographically Diverse Group Fills Out National Office Property Index

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