Robust growth continues to power demand for U.S. office in Q3 2018
Third quarter 2018 demonstrated further movement toward a more balanced U.S. office market, characterized by healthy activity from occupiers, positive but less acute asking rent growth and a widening array of space options across asset segments opening up for users, according to JLL’s U.S. office market statistics, trends, & outlook research report.
Even with near-full employment, broad-based macroeconomic fundamentals are keeping sentiment from employers and investors alike positive, maintaining net growth in the coming quarters.
As a result of 37.7 million square feet of new construction hitting the market, vacancy has risen by 40 basis points this year to 15.2 percent. Since 84.1 percent of currently under-development properties will deliver in the next two years, longer-term increases in vacancy are likely to be more limited and oversupply confined to select pockets. This pullback was evidenced by only 3.5 million square feet of space breaking ground in third quarter, well below recent quarterly figures.
In addition, overall rents rose by 0.7 percent, an improvement over the second quarter but still slower than earlier in the recovery as tenant demand remains stable and second-generation blocks hit the market.
Even as economic growth — particularly in terms of GDP growth and consumer sentiment — remains strong, the war for talent will keep expansionary activity subdued. The wave of new supply will also improve tenants’ flexibility and leverage, further boosting leasing volumes in the absence of a spike in employment as occupiers take advantage of more generous deal terms spurred by landlords competing for tenancies through larger and more comprehensive incentives packages, stated the report.
