Office absorption slowed down in the fourth quarter of 2017, according to the fourth quarter office report from Newmark Knight Frank. While absorption is positive, it fell over the previous quarter and the previous year to 231,144 square feet from in the previous quarter and 237,477 square feet in the fourth quarter of 2016. There has been a steady pattern of deceleration each year, according to the report. In 2014, there was a total of 3 million square feet of absorption. 2015 had a gain of 2.4 million square feet, 2016 recorded 2 million square feet, and 2017 posted 1.8 million square feet.

While the report shows steady deceleration, Steve Kolsky, an EP and managing director at Newmark Knight Frank, says that the numbers are deceptive. “I think that is a little bit misleading because those numbers are based on move-ins, not necessarily deals done,” Kolsky tells GlobeSt.com. “There were some pretty good deals that were done that are not yet reflected in those numbers. Tesla, for example did 130,000 square feet in Venice and Apple did 85,000 square feet in Culver City and neither of those are in the report.”

While he says that activity has been strong, he agrees that activity has slightly waned. However, that may be an effect of deal speed rather than demand. “I would say that there was a little bit of a slow down, but I think part of that was that it is taking longer for deals to get done these days,” he says. “In general, there is still a lot of velocity out there and deals in the market.”

Looking ahead into 2018, Kolsky says that all signs point to a healthy economy with a steady office market. “Right now, the signs are for a healthy market,” he explains. “All of the local real estate factors, show a strong real estate cycle. You have a lot of companies coming to the market and doing well, and there isn't an over abundance of supply.”

One warning sign: the length of the cycle. Fundamentals remain strong, but investors are aware that we are getting late in the game. “We are in the late innings of a market cycle, if you look at a traditional market cycle,” says Kolsky. “History tells you that something has to give. There are just no signs of it yet.”

Instant Insights /

Office Absorption Slows in 4Q17

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