National office leasing remains strong in the Q3 2018

National office leasing remained strong in the third quarter, boasting stable asking rents and availability rates across the country, according to Savills Studley’s Q3 2018 National Office Market report.

National four-quarter trailing leasing (the sum of activity over the last four quarters) totaled 230.7 million square feet, an increase of 11 percent from the 208.8 million square feet total in third quarter 2017, according to the report.

Additional highlights from the 2018 National Office Market report include:

• HOLDING STEADY. The national overall availability rate was unchanged, remaining at 18.1 percent. San Francisco remains the tightest market in the country (9 percent), followed by Boston-Suffolk County (9.7 percent), New York City (11.6 percent), and Austin (12.8 percent).
• ASKING RENTS STABLE. The report shows that the national overall asking rent fell by 0.1 percent from $34.39 to $34.37 in third quarter, but has jumped 2.4 percent year-on-year.
• TARIFFS’ TOLL ON LUMBER. The report points out that hard costs associated with the steel, lumber, drywall and wiring that go into buildings have been mounting in the last year. According to lumber market industry tracker Random Lengths, the price of lumber from Western Canada jumped from less than $220 per 1,000 board feet in the fall of 2015 to $350 last summer and then spiked to more than $650 by June 2018 — an 80 percent rise in one year. Tariffs, national disasters such as Hurricane Irma and a transportation worker shortage all contributed to the spike. The increase came a year after the Trump administration imposed a 20 percent tariff on Canadian lumber.
• BUILD BEFORE THE CYCLE ENDS. Though material costs such as steel are rising, new office development remains elevated in many markets, according to the report. Some tech centers such as Silicon Valley, Boston, and Raleigh/Durham are near the top of the list for speculative office development. These three markets have a combined 9.8 million square feet under way. San Francisco has just under 3 million square feet under construction, but more than 90 percent of it is pre-leased. Development activity is also at high levels in markets that are more dependent on traditional office space users, such as Manhattan and Washington, D.C. (20 million square feet is under way in these markets.)
• A LEAGUE OF THEIR OWN. For many of the largest tech and creative sector firms, the cost of space is not a stumbling block. In turn, office landlords still have more pricing power in most tech market such as San Francisco and Silicon Valley. At the same time, the flow of tech firms either relocating entirely to lower-cost markets or moving portions of their operations to secondary locations is not abating.