The office market remained strong in the first quarter, with availability rates declining and rents rising on both a quarterly and annual comparison.
Leasing activity was slightly lower for the quarter and for the year.
The national overall availability rate, 14.7%, registered an annual drop of 1.4 percentage points. It posted a 0.4 percentage point decrease from last quarter.
All markets registered annual declines in their overall availability rates.
The national class A availability rate, 13.9%, fell for the 12th consecutive quarter, down by 0.4 percentage points. Annually, it decreased by 2.9 percentage points.
Washington, D.C., and New York continued to be the tightest markets in the country with overall availability rates of 6.4% and 9.2%, respectively. South Florida (11.2%), suburban Maryland (11.3%), Orange County (11.5%) and Northern Virginia (11.8%) also registered comparatively low overall availability rates.
At the other end of the spectrum, Dallas/Fort Worth, with an overall availability rate of 24.1%, Atlanta (19.8%) and Denver (19.2%) remained the softest markets.
The largest annual drops in overall availability rates took place in Denver (-3.9 percentage points to 19.2%), Philadelphia (-3.9 percentage points to 14.3%), South Florida
(-3.5 percentage points to 11.2%) and Houston (-3.1 percentage points to 17.6%).
Overall rent increased by 6.5% from its year-ago rate to an average of $24.54. It also was 3.1% higher than during the previous quarter. Only two markets saw their overall rent decline from the same period a year ago,downtown Philadelphia (down 1.9% to $22.47) and metro Chicago (down 0.8% to $22.74).
The greatest annual increases in overall rent occurred in Northern Virginia (up 7.3% to $27.06), New York (up 9.1% to $45.69), San Francisco (up 10.5% to $30.24) and OC (up 15.9% to $26.53).
Overall leasing activity slowed, but still reached a healthy 42.1 million square feet. Volume decreased by 18.5% from the year-ago period and by 11.6% from last quarter. The trailing four-quarter leasing activity reached 180 million square feet,only 6.1% lower than a year ago.
In most markets, quarterly leasing activity decreased in comparison to the same period a year ago.
The largest declines took place in Tampa Bay (down 49.1% to 586,194 square feet) and New Jersey (off 45.5% to 1.6 million square feet).
Falling availability rates and rising rents are still anticipated during the next few months.
Reflecting this trend, the value of concession packages has already diminished in some markets. This trend also appears to have prompted construction plans and proposals to meet the future demand for space.
Here’s a look at some markets around the U.S.:
Atlanta
Continuing last year’s trend, development of all kinds,office, mixed-use and infrastructure,is proliferating in Atlanta. During the first quarter, a number of new projects were announced, most notably in the Buckhead submarket. Atlanta’s sales streak continues strong. An impressive 22 buildings comprising 3.7 million square feet changed hands during the first quarter, according to Real Capital Analytics.
Dallas
Since peaking at 5.7% in 2002, available sublease space in the Metroplex has been steadily decreasing. The first-quarter level was 2.4%. At the end of 2002, sublease space accounted for 10.5 million square feet of total available space of 42.5 million square feet. During the first quarter, 4.4 million square feet of sublease space was available,a decrease of 58.1% from the peak.
Denver
The Denver office market is benefiting from a number of favorable trends. Both the central business district and the suburbs continue to recover (although certain submarkets are lagging), with declining availability rates and rising rents. The local economy is solid and further employment growth will likely increase demand for office space. Also, building sales remain robust, signifying investor confidence in the market.
South Florida
In Miami-Dade County, Fullerton-based Beckman Coulter Inc. is selling more than half of its 102-acre corporate campus in West Kendall,putting 53 acres of undeveloped land on the market. In Palm Beach County, the city of Jupiter’s proposal to house the Scripps Research Institute at Florida Atlantic University in Abacoa and at the nearby Briger site was approved.
Houston
Continuing a trend that began last quarter, a number of large leases were signed. Four transactions were for 200,000 square feet or more and three of these involved expansion. In the central business district, overall leasing volume for the quarter was 1.2 million square feet, a 42.6% increase versus the activity level for last quarter and a noteworthy 202% rise from the year-ago level.
New York
Rents continued to rise in Manhattan despite a lull in tenant activity during the first quarter. Both midtown and downtown posted lower leasing volume than in the previous quarter, or in the same quarter a year ago. As a result, while Manhattan’s overall availability rate of 9.2% remained below the 9.7% level of a year ago, it rose by 0.2 percentage points from the year-end rate of 9%.
Analysis by Studley Inc.
