Solid leasing across major office markets in Q2 2018: New supply to test demand in several markets

The Q2 2018 U.S. Top Office Metros Snapshot reports that all but one of the top 10 U.S. office markets posted positive absorption in Q2 2018 — an encouraging shift from Q1 2018 when four markets registered negative absorption. Rents rose or held firm in nine out of 10 markets, though vacancy rose in four of the markets.

Key takeaways from this report include:

  • In addition to major tech companies, coworking firms signed more large leases in Q2 2018 and have aggressive expansion plans. Landlords are responding with their own flexible workspace offerings.
  • The San Francisco Bay Area leads the top 10 markets and the gap is widening. The second quarter saw strong rental growth and a fall in vacancy to sub-5%. Top rents in core San Francisco and Silicon Valley locations are in striking distance of $100 per square foot.
  • Manhattan held firm in Q2 2018 and leasing volume is on par with 2017. The establishment of Hudson Yards as a premier location was underlined by an 800,000-square-foot lease to Pfizer.
  • Boston is on a roll. Several major leases were signed in Q2 2018, and there is six million square feet of known demand in the market. The Back Bay is leading the charge.
  • Washington, D.C. saw a sharp uptick in vacancy in its downtown core. Over 1.5 million square feet of new space was delivered in the second quarter and more is on the way.
  • Los Angeles is also facing supply pressures. New supply is starting to deliver in West LA and is mostly vacant. Downtown LA will face a large influx of new space in early 2019.
  • River North, formerly a lesser fringe location, is the center of attention in Chicago, with a 2.5-million-square-foot project now underway. Chicago is seeing a major influx of coworking firms.
  • Seattle saw a healthy drop in vacancy in Q2 2018 and now has the third-lowest vacancy rate of the top 10 markets. Amazon and WeWork continue to lead leasing activity.
  • Houston’s vacancy rate dropped by 70 basis points (BPS) in Q2 2018 but is still by far the highest among the top 10 markets. Tenant interest in the CBD is on the rise.
  • Construction activity in Dallas has shifted to Uptown/Turtle Creek with three projects, totaling a combined 1.2 million square feet, scheduled to deliver in the remainder of this year.