4.1% annual growth in office asking rents above five-year compound annual growth rate

Market has experienced no change in office vacancy rates in three quarters.

May 31, 2019 |

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Transwestern’s first quarter national office report confirmed the general opinion that the U.S. office market remains strong, with overall vacancy holding steady at 9.8%. National average asking rents nudged higher during the quarter to $26.63 per square foot, reflecting a 4.1% annual growth rate that exceeded the five-year compound annual average (CAGR) of 3.4%.

Of the 49 U.S. markets tracked by Transwestern, 45 reported positive rent growth, with 24 of those recording rates above 3.0%. The leaders in rent growth included Minneapolis; San Francisco; San Jose, California; Nashville, Tennessee; Raleigh/Durham, North Carolina; Tampa, Florida; Pittsburgh; California’s Inland Empire; Manhattan; and Charlotte, North Carolina.

“The U.S. economy grew 3.2% in the first quarter, the highest first-quarter growth in four years,” said Ryan Tharp, Research Director in Dallas. “That said, we are closely watching how factors such as U.S. trade conditions might impact the domestic economy in the remainder of 2019.”

Overall office leasing activity in the U.S. has slowed since 2016 but still ended the first quarter 1.5 million square feet higher than a year ago. Net absorption fell to 10.9 million square feet, with sublet space recording negative growth of 1.6 million square feet.

Construction activity jumped 9.7% during the past year, the highest level in the current cycle, but rising land and construction costs and labor challenges continue to limit new building deliveries and stave off systemic overbuilding that undermined some previous cycles.

“Solid fundamentals and adequate debt and equity capital bode well for continued, healthy performance in the office sector and cap rates remain at historic lows,” Tharp said. “We expect asking rents to settle at an annual rate of growth between 3.0% and 3.5% by the end of the year.”

Download the full National Office Market Report at: http://twurls.com/1q19-us-office

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