2:00 PM
New office product across the U.S. totaling 13.2 million square feet in the fourth quarter, outpaced absorption totaling 9.3 million square feet, according to the latest data from Newmark Grubb Knight Frank (NGKF). This broke a string of 10 quarters where demand exceeded new supply. New York, Washington, D.C., and Houston accounted for half of the new space added in the fourth quarter of 2013.
For the full year, absorption outpaced deliveries, 47.0 million square feet to 29.9 million square feet. Annual absorption was strongest in Dallas, Houston, San Jose/Silicon Valley, Orange County, Calif., Manhattan and Atlanta, each absorbing more than 2 million square feet. As a percentage of occupied space, absorption was strongest in San Jose/Silicon Valley at 4.9%, followed by Orange County, Calif., Detroit, Westchester County, N.Y., and Columbus, Ohio.
The surge in new deliveries did not reverse the downward trend in overall vacancy, which ended the fourth quarter at 15.0%, tighter by 10 basis points from the third quarter and by 50 basis points from the fourth quarter of 2012. As a result, asking rental rates reached their highest level since the first quarter of 2009, ending the fourth quarter at $26.27/SF gross.
“Office rents nationally were up a moderate 3.5% for the year,” said Robert Bach, Director of Research - Americas. “Although no markets saw double-digit gains, a few came close, with Austin, Texas, registering the highest yearly increase at 9.2%.” Other markets with gains of at least 5% included San Francisco, Boston, Fairfield County, Conn., Oklahoma City and Dallas.
Construction activity ended the quarter at 55.6 million square feet, its highest level since the second quarter of 2009. Manhattan led with 8.6 million square feet in the pipeline followed by Houston, Dallas, Washington, D.C., Boston, San Francisco, San Jose/Silicon Valley and Pittsburgh.
“In general, developers and lenders have exercised caution over the past several years, although the recent rise in construction will be something we watch closely,” said Mr. Bach. “In 2014, we anticipate the office market will tighten, but not at a rapid pace. Expect vacancy to end the year around 14.5% and rental rates to increase by 4%.”
The report points to gradual employment growth as the primary driver of market improvement, but cautions that the trend toward greater office space density will continue to dampen overall absorption.
For additional information about the national office market, contact Mira Matic at mira@miramaticpr.com, 973.461.9005.
About Newmark Grubb Knight Frank
Newmark Grubb Knight Frank (NGKF) is one of the world’s leading commercial real estate advisory firms. Together with its affiliates and London-based partner Knight Frank, NGKF employs more than 12,000 professionals, operating from more than 320 offices in established and emerging property markets on five continents.
With roots dating back to 1929, NGKF’s strong foundation makes it one of the most trusted names in commercial real estate. Its integrated services platform includes leasing advisory, global corporate services, investment sales and capital markets, consulting, program and project management, property and facilities management, and valuation services. A major force in the real estate marketplace, NGKF serves the local and global property requirements of tenants, landlords, investors and developers worldwide. For further information, visit www.ngkf.com.
NGKF is a part of BGC Partners, Inc. (NASDAQ: BGCP), a leading global brokerage company primarily servicing the wholesale financial and real estate markets. For further information, visit www.bgcpartners.com.