People everywhere are looking for more and more space to work, and office supply is just trying to keep up.
Marcus and Millichap, a national commercial real estate firm, believes U.S. office sector will continue to grow throughout the year. According to their “Office Outlook Summer 2016” report, a growth in office-using employment areas in combination with a slowed rate of new developments will continue to drive vacancy rates down throughout the year as rent growth increases.
These positive trends derive from a few factors.
The office-using areas of the workforce are continuing to increase after a relatively quick turn around following 2008. According to Marcus and Millichap, professional and business services have continued to grow, driving office-using employment up by 1.8 million users since its pre-2008 peak.
One major player is health care. In the healthcare industry alone “an additional growth in staffing will occur as more workers acquire employee-sponsored health insurance, generating needs for additional space.”
Another factor is the relatively slow level of development. While Marcus and Millichap predict that approximately 79 million square feet will be delivered in 2016 (an increase of 18% over the 67 million in 2015), construction rates are still nowhere near the rates preceding the recession. In the three years prior to 2008, the report states “an average of 109 million square feet was delivered.”
While national vacancy rates have continued to decline to a nationwide average of 15.1% at the end of this first quarter, rent rates have continued to climb. Marcus and Millichap states that the most recent 12-month period saw a 4.5% Y-O-Y increase, up from 3.3% the year before.
Written by Front Street Intern Rex Warner