Cassidy Turley, a leading commercial real estate services provider in the U.S., reports a continued upturn in the national office sector despite rising oil prices and crises abroad that are testing the nation’s economic recovery.
According to Cassidy Turley, demand recovery in 2010 was primarily concentrated in Washington, DC, New York, and Dallas and is now spreading more evenly across the U.S. Of the 82 markets studied, 52 registered increases in net absorption. In the first quarter of 2011, net demand registered at 7.5 million square feet, and vacancy fell 30 basis points from the previous quarter to 16.5 percent. The U.S. office sector saw rents rise five cents this quarter to $21.36.
“This is the first report in over two years that shows all of the metrics used to measure the health of the U.S. office sector are strengthening,” said Kevin Thorpe, Chief Economist at Cassidy Turley. We need many more reports similar to this one before the recovery will be completed, but clearly, the office sector is heading in the right direction.”
The strong rebound in office sales provides the clearest indication that the office sector recovery is gaining speed. In analyzing data from Real Capital Analytics, Cassidy Turley found that office sales volume is up 180 percent from the first quarter of 2010. Cap rates dropped 150 basis points (BPS) from their peak and are settling between 7.2 and 7.4 percent. In addition, vacancy rates have dropped 30 BPS from the previous quarter to 16.5 percent. With values firming, investment sales show no signs of slowing. In February 2011, buildings listed for sale totaled $6 billion—the highest monthly volume of offerings since June 2008.
The report also shows that shadow space continues to weigh down overall demand metrics in the first quarter. Based on the U.S. Bureau of Labor Statistics’ data on office-using employment, net demand should be running at levels about three times higher than the current findings.
“Increasing momentum in the labor markets – and specifically the rise in permanent payroll hiring – signals that demand will continue to strengthen and vacancy will continue to erode,” Mr. Thorpe continued. “Risks remain elevated, but the core of the recovery remains intact.”
The full report can be accessed here.
Source: Cassidy Turley