Healthy job growth and limited new construction in downtown areas is creating a supply-demand imbalance that puts landlords back in the driver’s seat, according to CBRE report
Los Angeles, California, 2014-9-23— /EPR Retail News/ — The delicate balance between a landlord-favorable market and a tenant-favorable market is approaching a tipping point in several major U.S. cities, according to CBRE’s latest OccupierView report, which analyzes the nation’s office markets from the tenant perspective. Tightening conditions are challenging tenants in most downtown areas from both cost and availability perspectives, the report finds, though there is little change in the suburban office markets.
The U.S. vacancy rate gradually declined over the past three years and is at the mid-point between its pre-recession low and recessionary peak (14.5% in Q2 2014). Downtown markets in Denver, Houston, San Francisco, Manhattan, Atlanta, Boston and Seattle are landlord-favorable, while Dallas-Ft. Worth, Los Angeles, Philadelphia, Chicago and Washington, D.C., are still tenant-favorable, but approaching a tipping point.
“By virtually all metrics, the second quarter of 2014 was one of the most robust in years in the office market with more than 15 million sq. ft. of positive net absorption—the highest quarterly figure since 2007,” said Colin Yasukochi, director of research and analysis for CBRE. “Healthy job growth and historically low levels of new construction means that companies need more space to put these employees, but with limited new supply, we’re now seeing a supply-demand imbalance in many key markets. This is very positive for landlords, but challenging for tenants.”
“Tightening labor markets and rising rents are causing tenants to be more focused on location strategies,” said Whitley Collins, who leads CBRE’s Occupier Services Division in the Americas. “As we move toward owner-favorable markets in some downtown areas, tenants who have leases coming due in the next three to five years need to lock in long-term leases in downtown areas now, or consider relocation to a suburban office market where tenants continue to be in the driver’s seat.”
Leasing activity in almost every market is being led by the high-tech sector. High-tech companies accounted for 19.9 percent of all U.S. major leasing activity* in the first half of 2014. Financial services and business services were the second and third most active sectors, at 12.4 percent and 10.6 percent, respectively.
*Major leasing activity reflects the 25 largest leases completed in the top 57 U.S. office markets each quarter.
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2013 revenue). The Company has approximately 44,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through approximately 350 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com.
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