2017 Closes Out on a Positive Note as Major Office Markets Remain Strong
The major office markets remained healthy in the fourth quarter, with rents holding steady in seven of the 10 major markets and rising in two.
Only one market saw a rise in vacancy during the fourth quarter and the rent growth witnessed in earlier quarters has tapered off, replaced by stable rents. Unsurprisingly, tech tenants are the major drivers of leasing activity as tech companies continue to expand their office footprint.
- The major office markets in the U.S. remain healthy, as tech tenants continue to lead the charge. The majority of leasing by tech firms is pure expansion, and there is no slowdown in sight. Co-working space operators, and WeWork in particular, are expanding aggressively.
- High-end, Class A space is in strong demand and setting record rents in the most prestigious submarkets. Tenants appear willing to pay more for the best space configurations and locations as they seek to retain and attract the most skilled employees.
- Markets where tech is a key driver lead the way. Manhattan, San Francisco and Seattle continue to dominate. San Francisco boasts the highest rents in the nation. Driven by further activity by Amazon, Seattle has the lowest vacancy rate of the major markets. All 10 markets covered in this report are on Amazon’s shortlist of potential locations for its second U.S. headquarters.
- Leasing volume in Manhattan is at close to record levels and Boston is one of the most dynamic markets in the top 10. Known tenant requirements are translating into leases signed and a further series of large leases are expected to occur over the next few months.
- Supply-side risk is diminishing, but Los Angeles still merits a note of caution. Construction is elevated in LA’s core locations while leasing activity remains stubbornly low. Concerns in Washington, D.C. have shifted from an oversupply of new product to the amount of older space left behind.
- Houston is still the most challenged of the top 10 markets, but a rise in the price of crude oil portends a potential upturn in fortunes. Dallas remains on a solid footing, but absorption is set to slow once the final major tenant move-ins in Far North Dallas are completed.