Office absorption remains robust, leading office asking rents to increase by 1.0% nationally during the first quarter, according to Yardi Matrix-National Office Report. U.S national vacancy rate remained steady at 13.7%.
Asking rents on vacant U.S. space averaged $36.09 per square foot in March, up 1.0% from three months ago despite a flat vacancy rate. San Francisco topped the list based on both asking rate ($66.04) and growth (12.6%), with Brooklyn’s growing office market second in growth (11.2%) while third in rate ($55.13).
A big factor in San Francisco’s listing rate growth was the start of pre-leasing at the new Oceanwide Center in the South of Market submarket. The two-building complex, which will be among the tallest buildings in the city, will add nearly 1.5 million square feet of office space to the Financial District when it delivers in 2021. Space is currently listed at $95 per square foot on a triple-net basis.
Listing rates increased more than 11% in Brooklyn over the past three months, as office supply and demand continues to grow outside of Manhattan. The 675,000-square foot Brooklyn Navy Yard—Dock 72 is expected to deliver this summer. WeWork has already leased about one-third of the building. The remainder is listed between $55 and $75 per square foot.
Nearly 9 million square feet of office space came online through February, with Class A space accounting for 7.9 million square feet of that total.
Yradi Matrix expects deliveries to pick up as the year progresses. Some 174.3 million square feet was under construction nationwide as of March. In addition, roughly 35 million square feet of owner-occupied space is currently under construction. Properties under construction represent a 2.9% growth of total inventory, while the total amount in the pipeline represents 9.0% of stock. Deliveries will likely exceed the 70.3 million square feet of non-owner-occupied space that came online in 2018. Office deliveries have gradually increased since bottoming at 30 million square feet in 2011, but growth remains far below the average of 107 million square feet that came online annually in the decade between 2000 and 2009.
Manhattan (23 million square feet) and San Francisco (11 million) lead the nation in space under construction.
The nationwide growth of office-using employment continues to be robust, and was up 2.0% year-over-year through March. Growth is led by the professional and business services segment, accounting for 1.7% of the increase. Financial services represents the other 0.3% of growth.
First-quarter transaction activity was weak, as $13.3 billion of sales closed in the U.S. through March. The three-month average of $4.4 billion is down slightly from the $6.8 billion rolling average of a month ago.
More than one-third of all first-quarter sales took place in primary markets San Francisco ($939.7 million) and Manhattan ($584.4 million). However, suburban markets totaled $2.0 billion of office sales, compared to $1.5 billion closed in central business districts (CBDs) and urban submarkets ($991 million).
”Reasons for the slowdown in sales are not entirely clear. To some degree the first quarter is typically less active than the fourth quarter, when firms rush to close deals by year-end. But seasonality can’t be the entire cause. One possibility is that the slowdown is a carryover from the capital markets volatility in the fourth quarter, when interest rates spiked and investors were unduly worried about the state of economic growth. The year also started during the government shutdown, which created some paralysis among investors.” said in report.
Source: Yardi Matrix