Office-Rental Market Is Getting Stronger

The market for Gainesville Florida office space is growing. Some market observers believe demand for office space will gain momentum this year. Office rents continue to grow in the fourth quarter of 2013, while vacancy rate remained unchanged from the previous quarter. 

By Kris Hudson l The Wall Street Journal 

The recovery of the U.S. office market picked up steam during the fourth quarter of 2013, according to new data from real estate research firm Reis Inc. REIS -0.53%

Businesses occupied an additional 8.5 million square feet of office space in the quarter. That was only a 0.25% increase from the third quarter, but Reis said it was the largest gain since the third quarter of 2007.

The expansion of tenants was offset by the completion of 9.1 million square feet of new office space during the quarter, the most since the fourth quarter of 2009, according to Reis, which tracks 79 major U.S. office markets. That left the market's vacancy rate at 16.9%, unchanged from the previous quarter.

The vacancy rate had been steadily falling from the recent high of 17.6% in early 2011, but it still is well above the low of 12.5% in the third quarter of 2007, Reis said.

The amount of occupied office space now stands at slightly more than 3.4 billion square feet, which falls short of the market's peak in late 2007 by 79 million square feet.

At the current rate that companies are leasing new offices—known as "positive absorption"—it would take more than two years to reach that peak level again.

Still, some market observers say they are optimistic demand for office space will gain momentum this year, further whittling the vacancy rate and allowing asking rents to rise. Average asking rents increased in the fourth quarter to $29.07 per square foot a year, up 0.7% from the third quarter but still short of the recent high of $29.37 hit in 2008.

"The pace of the recovery is still rather sluggish," says Ryan Severino, a senior economist at Reis, based in New York. "But a lot of the things that held the market back (last) year probably won't be in place in 2014. We're optimistic that 2014 can be better than 2013 was."

Mr. Severino said lawmakers are working on budget and spending accords that are expected to avert market-rattling events such as last year's debt-ceiling standoff and government shutdown.

Related
Office Rents Return to 2008 Rates
In addition, the Federal Reserve has alleviated uncertainty by promising to keep interest rates low while starting to slowly wind down its bond-buying program aimed at bolstering the economy.

Several signs indicate companies are ramping up hiring and investment. The unemployment rate stood at 7% in November, down from 10% in October 2009, though some of that decline is attributable to frustrated job seekers leaving the market.

Economic research firm Moody's Analytics projects office-using jobs will increase 2.1% this year to nearly 33.9 million. That growth rate, along with a 2.1% gain in 2012, are the largest since last decade's boom. "I would expect 2014 to be the best year since 2006 for office-using jobs," says Mark Zandi, chief economist at Moody's Analytics.

Reis' preliminary forecast for 2014 calls for office-vacancy rates to decline by roughly half a percentage point by year's end and asking rents to increase 2.8%, the largest gain since 2007.

Expanding businesses include Lockton Cos., an insurance broker based in Kansas City, Mo. The company said it has seen greater demand from clients in transportation, construction, real estate and general manufacturing industries. In turn, Lockton boosted it U.S. employee count by 250 to 3,239 and expanded nine of its 30 U.S. offices. In November, Lockton moved its Dallas staff into 100,000 square feet of downtown offices, amounting to a 40% expansion in space.

Insurers suffer when clients are having difficulties, said John Lumelleau, Lockton's president and chief executive. "When the economy strengthens, (clients') exposures increase and therefore opportunities for expansion increase."

In the fourth quarter, cities that posted the highest gains in average asking rents were Boston (up 1.6%), San Jose (up 1.4%) and Dallas (up 1.4%). The largest declines were in Jacksonville (down 0.5%); Tulsa, Okla. (down 0.4%); and Charleston, S.C. (down 0.4%).

The largest declines in vacancies were in Cleveland (down 1 percentage point), Syracuse (down 0.9 points) and Memphis and San Bernadino, Calif., (both down 0.7 points). Those with the largest increases in vacancies were Tacoma, Wash., (up 1.6 percentage points); Columbus, Ohio, (up 1.4 points); and Tucson, Ariz., (up 1.1 points).

Comment

Virginia MacKoul

Virginia is a graduate from the University of Florida's College of Design Construction and Planning with a degree in Sustainability and the Built Environment, and a minor in Urban Regional Planning. Virginia joined the Front Street team in 2011, as an intern. Upon graduation, Virginia joined the Front Street team full-time as the Director of Client Services. Ms. MacKoul’s addition furthers Front Street’s continued growth and expansion within Gainesville and other North Central Florida markets. She was promoted to Director of Marketing in 2014 and now manages the firm’s team of interns and oversees all marketing and branding activity. Virginia was born in Boston and moved to Lee County, Florida in 1997. Virginia graduated her high school's International Baccalaureate program and started at the University of Florida with a focus on Architecture. Virginia shares Front Street's passion of giving back to the community and those in need. Virginia's hobbies include photography, cooking, football, movies, music, and spending time with her dog, Brinkley.

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