Office Midwest

Plenty to like about office market's performance in 2018

Like records? The office market set them last year,ph01

It doesn’t matter how you measure it, the U.S. office market enjoyed a strong year in 2018. Demand for office space rose throughout the year. Vacancy rates fell to record lows. Rents rose across the country. And sales volume held steady.

That’s the good news from the four quarter 2018 Office Market Outlook released earlier this week from Colliers International. The not-so-great news? Colliers says that there are already signs that an economic slowdown might be hitting the country. Fortunately, Colliers points to a consensus saying that the country will see a soft landing instead of a major downturn. That should protect the U.S. office market from anything resembling a crash.

What is driving the U.S. office market? Colliers points to demand from tech and coworking firms. The good news is that Colliers sees no indication that tech demand will wane in 2019. There is some concern for coworking demand, though. If the U.S. economy does slow, office owners might not see as many coworking companies renting space in their buildings.

Not all office properties are doing as well as others. Colliers said that companies are working harder to attract and retain the best talent. To do this, they are seeking office space in optimal locations. In some markets, net absorption exclusively involves Class-A space, Colliers reports. The owners of older office space, then, will need to figure out how to market and reposition these buildings.

Colliers reported that the over all U.S. office vacancy rate stood at 11.6 percent as of the end of 2018. That is down 20 basis points from the end of the third quarter of that year. Even more importantly, this is a record low. Colliers said that 60 percent of U.S. office markets have vacancy rates below the historic average.

Average Class-A asking rents hit $36.90 a square foot during the fourth quarter. That is up 2.6 percent from the same quarter a year earlier. Average Class-A rates in CBD markets stood at $48.20 a square foot during the quarter.

Colliers also reported that the U.S. office market absorbed 23.8 million square feet in the fourth quarter, and that 84 percent of markets across the country saw positive absorption in the quarter. Total absorption for the year was 59.2 million square feet, 45 percent higher than the 40.7 million square feet that was absorbed in 2017.

Recognizing the strength of the sector, developers are adding new office space at an elevated pace. Colliers said that 125.8 million square feet of office space was under construction in the fourth quarter. That is down from 128.2 million square feet in the third quarter of last year, but is still at a high level historically.

Developers delivered 13.5 million square feet of new office space in the fourth quarter of lat year, up from 10.7 million square feet in the previous quarter. For all of 2018, developers added 58.6 million square feet of new office space to the country.