May 10, 2016
The US national office market recovery slowed slightly in the first quarter of 2016 amid some volatility within the financial markets. However, as the financial markets stabilised later in the quarter, office based job growth accelerated, likely signalling stronger tenant demand in the months ahead, according to a new report from CBRE. Tech and healthcare companies continue to drive growth, resulting in a scarcity of creative space in many cities. Meanwhile, energy-dominated markets slowed further due to sustained low oil prices. Many companies continued to seek space in vibrant downtown and suburban areas near public transport links in order to attract talent. A tightening supply within the Class A market has resulted in tenants exploring well-located Class B properties and creative space, with tenants across geographies and industries exploring alternate workplaces strategies to maximise efficiencies and collaboration.
According to the trends report, tech companies continue to look for creative, renovated warehouse space but also are migrating to Class A space with ample amenities. With healthy office-using employment growth and limited new supply expected in 2016, rents look likely to increase further.
“Tech companies continued to drive growth across the nation, resulting in a scarcity of creative space in many cities. Conversely, energy-dominated markets slowed further due to sustained low oil prices,” said Andrea Cross, Americas head of office research, CBRE. “Many companies continued to seek space in vibrant downtown and suburban areas near public transportation in order to attract talent desiring a live/work/play environment.”
The research found that a lack of new supply is resulting in a shortage of large, available blocks of Class A space in an increasing number of markets. As a result of the shortage of Class A space, developers are renovating Class B buildings. Speculative construction is increasing slowly. However, rising construction costs are restraining development activity outside of the strongest markets. This lack of available space means that landlords continue to push rental rate increases and reduce concessions in many markets.
“With healthy office-using employment growth and limited new supply expected in 2016, rents will likely further increase,” said Ms. Cross. “However, we continue to keep a close eye on any impact from financial market volatility and global risk factors on office market fundamentals.”
The full report, which reflects current observations and sentiments from more than 1,500 CBRE professionals across the Americas, can be accessed here.