Net Absorption Rebounds in Q2

  • One of the standout observations in last quarter’s office market was the negative net absorption number. As additional first-quarter move-ins were reported after the fact, Q1’s absorption total has been revised, but remains negative at around -80k SF. (Absorption is the net of tenants physically moving in to occupy space versus tenants moving out of occupied space.)
  • During Q2, tenant move-ins strongly outpaced move-outs, resulting in over 200k SF of net positive space absorption. This aligns with expectations that late 2016 and early 2017 lease executions would drive a return to positive absorption in Q2 as those tenants took occupancy.
  • CBD absorption was strong in Q2, a counterpoint to the negative absorption in the group of submarkets surrounding the CBD (referred to in this report as “CBD Perimeter”*).
  • Rental rates in these close-in submarkets have been increasing quickly in recent quarters. This helps explain the CBD Perimeter’s negative Q2 absorption as tenants sought more options and affordability elsewhere—including in the CBD.
  • In Q2 2017, the CBD’s quoted Class A full-service direct rental rate of $32.40/SF declined $0.04 or -0.1% versus the same period a year ago. It is 15.7% higher than the same period 3 years ago, and 26.2% higher than the same period 5 years ago.
  • For comparison, in Q2 2017, the CBD Perimeter’s quoted Class A full-service direct rental rate of $30.98/SF is 3.1% greater than the same period last year, 24.3% greater than 3 years ago, and 31.9% greater than 5 years ago.
  • The development pipeline remains steady for the time being, with around 1.5M SF under construction in Q1 and Q2 2017. 28.5% of this pipeline is now preleased, up from 10.5% in Q1.
  • 1320 Broadway set a new high-water mark by selling for $540/SF, and yet early Q3’s sale of Pearl West surpasses this at $563/SF.
    *CBD Perimeter includes the Lloyd District, SE Close-In, Johns Landing, SW Close-In, NW Close-In, and Guild’s Lake submarkets.

Quick Fact: $181 Million

  • 2 CBD investment sales totaled $106M and averaged $341.89/SF
  • 6 suburban investment sales totaled $71M and averaged $164.06/SF
  • One CBD owner/user sale totaled $2.6M at $260/SF
  • One suburban owner/user sale totaled $1.4M at $106.94/SF