LOS ANGELES—For the first time in seven years, US office vacancies nationwide ticked upward slightly in the first quarter, CBRE said Wednesday. However, the firm's latest Americas Office Report notes that vacancies declined on the local level in most markets during Q1, notably in the suburbs.

“Despite political and economic uncertainty, office market fundamentals continue to strengthen in the Americas as a whole, but opportunities and risks vary for individual markets,” the report states. “US employment growth remains strong, and tightening labor market conditions are keeping companies focused on labor cost and availability when selecting new markets. Building amenities that facilitate talent attraction and retention are equally important.”

Often slower to recover from the post-2008 downturn, suburban office markets now are pulling ahead. CBRE says they accounted for 74% of total net absorption in Q1, despite holding only 65% of total inventory.

An illustration of one of the factors lead to the rise of the suburbs can be seen in Miami, where CBRE reports that tightening CBD vacancy and worsening traffic conditions are leading tenants to seriously consider a move to suburban locations. Furthermore, the report says, “Companies remain interested in urban, walkable locations, though this is not limited to CBDs. Suburban markets that have downtowns are also attractive.”

And notwithstanding the slight increase in national vacancy during the previous quarter, more than 80% of US markets saw year-over-year rent increases in Q1. Partly that's due to still-modest levels of construction nationally, and increasing levels of concentration in terms of where development is occurring: CBRE says that more than 50% of all US office space now under construction resides in the top five markets.

In markets where rents have yet to reach levels supporting new construction, “renovation and repositioning of underutilized space is increasingly common as landlords respond to tenant demand for efficient, amenity-rich office buildings,” according to CBRE. Another trend affecting the leasing environment: tenants across regions and industries are continuing to dispose of surplus space and/or implement more efficient workplace designs “to prepare their portfolios for the future and manage for economic uncertainty.”

In the investment sales arena, US office volume totaled $27.7 billion in Q1, down by 12.4% year-over-year. CBRE says much of the decline could be attributed to a drop in entity-level transactions. By comparison, individual asset trades, which provide a finer gauge of sales momentum, were down just 4.7% from a year ago.

Investors demonstrated an increased appetite for risk in Q1, says the CBRE report. Deal volume in tertiary markets grew by 7% Y-O-Y during the quarter, while the six major metros combined recorded the largest drop in deal volume (-15%).

Conversely, office acquisitions by cross-border investors increased by 18% Y-O-Y in Q1 to $6.2 billion. Singapore was the largest source of cross-border capital at 29.7%, followed by Canada, China and Japan.

Speaking of Canada, office markets in that country saw their first decrease in vacancy since Q2 2014, a drop of 20 basis points to 13.1%. Here again, the suburbs powered the market, with suburban leasing activity accounting for 79.2% of absorption in Q1.

The CBRE report also notes that Mexico City's class A office inventory grew by 1.8% in Q1 and 7.7% Y-O-Y to 60.3 million square feet. New completions expected later this year should increase total class A inventory in the market to 66.3 million square feet. That being said, class A net absorption in Mexico City exceeded 753,000 square feet, with the business services sector accounting for 45% of the demand.

Instant Insights /

Suburbs Pull Ahead in Q1 Office Leasing

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