Boring is Good: U.S. Office Market Holds Firm with Minimal Change in Metrics

The U.S. office market experienced very little change over the course of Q3 2017 with occupancy rates remaining at peak levels and rents holding firm. Although construction levels remain elevated, the volume of office space under construction declined slightly from 113 to 109 million square feet. The office investment market is showing signs of cooling although suburban assets remain popular among investors.


  • Uptick in Absorption with Class A Space in Most Demand: U.S. office absorption rose to 12.8 million square feet in Q3 2017—an increase of 1.8 million square feet over Q2 2017, but less than half the pace seen in mid-2015. There is a strong preference for Class A space, which accounted for 90% of downtown absorption in Q3 2017 and 75% in the suburbs.
  • No Change in Vacancy: The U.S. office vacancy rate has been virtually static for seven successive quarters and remains at the level seen at the peak of the previous cycle.
  • Rent Growth is at a Virtual Halt: Average office asking rents showed minimal change in Q3 2017 falling by a paltry 0.4%, following two quarters of sub 1% growth. Class A suburban properties have been outperforming with rent growth of 2.8% year-to-date but exhibited no change in Q3 2017.
  • Construction Shows First Signs of Slowing: Although still elevated, at least by the moderate pace of this cycle, the volume of office space under construction in the U.S. fell slightly in Q3 2017, after two quarters of holding steady, declining from 113 to 109 million square feet. This year should represent the peak for space added in the current cycle as fewer projects break ground.
  • Mixed Message for Investment: The national investment market is showing signs of cooling with sales volume down by 18% year-over-year. CBD sales volume is falling even faster, but suburban activity is holding up as investors look for higher yields. Cap (capitalization) rates and pricing are holding firm for now.