Commercial Office Market Ready for Rent Growth

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Randyl Drummer with CoStar News reports that the rebound in office type jobs is becoming strong  enough that we could see rent growth in the near future.  The growth spreading to smaller businesses and secondary markets coupled with positive absorption and little new supply coming on the market will lead to rent growth over the next few years.

Office held at a positive net absorption of 11 million square feet in the first quarter of 2012 and vacancy fell another 10 basis points to 12.7% according to the report presented to CoStar clients by Walter Page, director of research for Property and Portfolio Research (PPR), CoStar’s analytics and forecasting division, and Jay Spivey, CoStar senior director of research and analytics.  However, this is still far below the peaks levels of 30 to 40 million square feet in the mid 2000s.

Job growth has been softer than expected, but the economy is converting temporary jobs to permanent full time jobs at a faster clip plus employees are working longer hours so that should lead to unemployment returning to its long term average of 6% by 2015. Plus, the availability of construction financing is expected to remain tight over the near to medium future so that will further tighten supply.

Due to the prolonged downturn, rents are cheap so smaller tenants are taking advantage of this to upgrade space and location.  The majority of the activity is space of 2,000 square feet or less and leasing of space over 50,000 square feet is less than 1% of the activity.

In summary, it’s looking like a few decent years ahead for the office market.