While office demand dropped slightly in 4Q11, the U.S. office sector’s overall 2011 space demand reached the highest level since 2007, according to Cassidy Turley’s 4Q11 national office trends report. However, 2012 is expected to remain relatively flat across most regions. “Even after a bumpy but positive year of business expansion, and by extension, improved occupancy gains, the U.S. office sector is still a solid 12 months away from registering consistent upward movement in rents across the country,” said Kevin Thorpe, chief economist for Cassidy Turley.
The top five markets leading 4Q11 space demand were New York; San Jose-Silicon Valley, Calif.; Seattle-Tacoma-Bellevue, Wash.; Houston-Baytown-Sugar Land, Texas; and Dallas. “The two primary job sectors driving growth in most of these markets are technology, including mobile technology, social media, Internet warehousing, and supporting infrastructure, and the energy sector,” Thorpe said. “In terms of rent growth, California tech markets and New York City were miles ahead of rest of country in 2011. Nationally, office rents grew only 0.3 percent last year.”
Concerns about the ongoing European sovereign debt crisis and U.S. fiscal debt are expected to continue to weigh on the economy this year, according to the report. Gross domestic product growth may inch up toward 2.0 percent, well below potential, Thorpe noted. “Given this economic backdrop, core product in top-tier markets will lead the way yet again in investment sales. Industries most likely to grow in 2012 include technology, energy, healthcare, and auto.” Markets most likely to lag are those still working through severe housing oversupply and foreclosure problems.
The office construction pipeline remains very constrained at approximately two-thirds below normal levels. “Even if 2012 looks the same as 2011 in terms of the economic recovery with only modest demand for office space, most markets will be in a much stronger position to push rents upwards by mid-2013,” Thorpe concluded.