Transwestern’s national office report reflects resilience in market fundamentals, even in the face of the moderating pace of U.S. economic growth demonstrated by net job creation averaging 172,000 per month for the first half of the year. In this environment, the national vacancy rate held steady at 9.7 percent in the second quarter thanks to healthy preleasing levels of newly delivered office assets.
“Signals continue to point to a disciplined office market that will perform well through year-end,” says Elizabeth Norton, managing director of research at Transwestern. “Especially noteworthy is that in the second quarter, annual asking rental rates grew 4.2 percent year over year, the fastest rate this cycle and well above the five-year average of 3.4 percent.”
At quarter end, the average asking rental rate was $26.83 per square foot. Annual rent growth has been strongest in Tampa, Fla. (10.6 percent), followed by Nashville, Tenn. (9.5 percent); San Jose/Silicon Valley, Calif. (9.4 percent); Austin, Texas (8.8 percent); and San Francisco (8.8 percent).
Additionally, net absorption more than doubled to 24 million square feet in the second quarter despite sublet space adding 1.9 million square feet back to available inventory. Absorption leaders during the past year include Seattle; Charlotte, N.C.; Dallas-Fort Worth; Los Angeles; and Northern Virginia. Seattle posted nearly 6 million square feet of absorption during the past 12 months, bringing the metro’s vacancy rate down to 6.1 percent, the fourth-lowest of the 49 markets tracked by Transwestern.
Office construction activity hit its highest level of this cycle, growing 9.6 percent during the prior 12 months. The second quarter saw more than 21.7 million square feet of new space added to inventory, and this pace will continue through the remainder of the year. Currently, 163.6 million square feet is in the pipeline nationally.