The national office market continued to move toward equilibrium during the fourth quarter.
Availability rates declined and rents rose. Leasing remained at a healthy level.
The national availability rate, 15.1%, posted an annual decline of 190 basis points. Class A availability of 14.3% was down by 330 basis points compared to a year earlier.
Washington, D.C., and New York continued to post the lowest overall availability rates in the U.S.: 7% and 9.1%, respectively. Orange County was close to the top, with availability of 11.3%.
At the other end of the spectrum was the Dallas/Fort Worth market, with an overall availability rate of 24.9%.
Overall rent increased by 8.3% from last year to an average of $23.80 per square foot per year. All markets registered yearly overall rent increases, with the biggest growth in San Francisco, up 21.2%, Northern Virginia, up 9% and OC, up 8.1%.
Availability rates are expected to continue falling while rents rise. As markets tighten, the value of concession packages likely will decrease.
Following is a rundown on some U.S. markets.
During the fourth quarter, metro Atlanta’s overall availability rate fell to 20.4% from 21.3% during the previous quarter and 23.8% a year ago. Despite the decline, rents remained soft across most of the region. Overall asking rent stood at $18.95, a 2.3% yearly increase.
Greater Chicago’s overall availability rate, 18.9%, was virtually unchanged from last quarter’s rate of 19%, and declined by 110 basis points from a year ago. Overall rent, $23.01, recorded a slight quarterly decline of 0.7% and an annual increase of 1.9%.
The overall availability rate for Dallas/Fort Worth stood at 24.9%, a decline of 90 basis points for the quarter and 260 basis points for the year. Overall rent, $17.21, recorded a 0.4% drop for the quarter but a 2.2% gain for the year. Total leasing reached 15.2 million square feet in 2005,an increase of 13.1% over 2004.
Greater Denver’s overall availability rate of 20.7% fell by 70 basis points from last quarter and 370 basis points from last year. The region’s overall rent, $17.09, increased quarterly by 0.4% and annually by 5.5%.
Greater Houston’s overall availability rate stood at 18.4%, a decline of 190 basis points from the previous quarter and 280 basis points from a year earlier. Overall rent, $17.29, registered a quarterly decline of 0.2% but an annual gain of 1%. Class A rent, $19.73, rose by 0.1% for both the quarter and the year.
Greater Los Angeles’ overall availability rate declined for the seventh consecutive quarter, to 13.9%,a quarterly decrease of 100 basis points and a yearly drop of 230 basis points. Overall rent stood at $25.65, a decrease of 1.8% for the quarter but an increase of 4.3% for the year. Class A rent, $27.56, also fell quarterly, by 1.2%, but rose annually by 5%.
Leasing volume for 2005 reached 12 million square feet,not only 13.4% greater than in 2004, but also its highest level since 2002. However, the overall availability rate showed minimal movement, inching downward slightly to 16.5% from 16.6% in the previous quarter and 16.9% a year earlier. Although rents have failed to establish an upward trend over the last few quarters, the overall rate did increase by 0.4% from last quarter and 3.2% from last year, to $23.75.
Manhattan’s overall availability rate of 9% was down from 10% the previous quarter and 9.9% at the end of 2004. Overall rent, $43.22, registered a quarterly increase of 1.5% and a yearly jump of 7%. Total leasing reached 8.4 million square feet, a quarterly increase of 61.8% and a yearly drop of 20.9%.
The overall availability rate decreased for the 11th consecutive quarter and fell to a record low of 11.3%. Overall rent increased to a record $25.19. Total leasing activity last year, which has grown steadily since 2001, totaled 10 million square feet,slightly higher than the 9.9 million square feet posted in 2004 and just shy of the peak, 10.4 million square feet, registered in 2000.
The region’s overall availability rate, 17.4%, decreased for the quarter by 80 basis points and the year by 150 basis points. Overall rent rose by 0.9% for the quarter and by 3.2% for the year, to $23.51. The region’s total leasing activity was strong in 2005, totaling 10.6 million square feet, an increase of 43.5% compared to 2004.
The booming investment sales environment sets a highly optimistic tone for the San Francisco office market’s health. This optimism, coupled with relatively strong leasing activity, fueled an annual increase of 21.2% in the overall asking rental rate, to $30.44. The overall availability rate, 14.2%, dropped by 60 and 380 basis points for the quarter and year, respectively.
Analysis by Studley Inc.’s research services unit.
