LOS ANGELES—The fourth quarter saw an average increase of 10 basis points in the US office market, CBRE said Thursday, with vacancies up 10 bps year over year to 13%. It represented the first annual increase nationally since 2010.
“The fourth quarter’s slight office vacancy rise can be attributed to an increase of supply and a slight loosening in the tightness of the market as we have closed in on the previous cyclical low,” says Spencer Levy, Americas head of research for CBRE. “Despite the slight rise in vacancy, we see the new supply as healthy overall, as many markets were becoming space constrained, in particular for large block space.”
Suburban vacancies and CBD vacancies alike ticked upward by 10 bps, to 14.2% and 10.7%, respectively. However, CBRE notes that vacancies continued to decline in a majority of US office markets last year, and nationally the vacancy rate remains near its post-recession low.
The largest metro-area declines were recorded in the Inland Empire, where office vacancies fell by 80 bps; Salt Lake City (down 70 bps) and Richmond, VA (down 60 bps). Across the past four quarters, most vacancy tightening has occurred in mid-sized markets across the Sun Belt, including Tucson, Las Vegas, Richmond, Albuquerque, Louisville, Orlando, Wilmington, Tampa, Phoenix, Kansas City, the Inland Empire, Detroit and Jacksonville. The nation’s lowest vacancy rates list in Q4 were found in tech markets: Seattle (7.6%), San Francisco (7.8%), Austin (8.2%), Raleigh (8.3%), New York (9.4%), and Boston (9.8%).
For the current year, CBRE expects improved US office market fundamentals to continue in 2018, although at a slower pace due to higher completions and the tight labor market’s impact on tenant demand. “Older buildings lacking the amenities preferred by today’s workforce and the infrastructure to handle evolving technologies could struggle, particularly in markets where large volumes of high-quality product are being delivered” according to CBRE’s 2018 US Real Estate Market Outlook. “Meanwhile, suburban submarkets that offer a range of housing choices along with urban amenities—including retail and restaurant options, public transit and walkability—are well positioned to capture demand from the maturing Millennials.”
Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com.