Vacancy in the U.S. office market inched up by 10 basis points (bps) during the first quarter of 2016 (Q1 2016), rising to 13.2 percent, according to the latest analysis from CBRE Group Inc. Even with the increase, the national office vacancy rate remains at the lowest level since 2008.
Despite the slight increase, vacancy continued to improve in the majority of U.S. markets, with rates falling in 33 markets, rising in 25, and remaining unchanged in five. Suburban vacancy remained at 14.7 percent while downtown vacancy increased by 10 bps, to 10.4 percent. The overall national office vacancy rate has fallen 70 bps over the past four quarters.
“The office market paused in Q1 2016 after several strong quarters as economic uncertainty and market volatility weighed on occupancy decisions,” says Jeffrey Havsy, chief economist, Americas, for CBRE. “Despite this, demand for space remains healthy, fueled by steady job growth, and we expect the market to continue to strengthen at a modest pace the remainder of the year.”
Detroit recorded one of the largest quarterly declines of 130 bps, while Nashville, Louisville, Columbus, Cleveland, Milwaukee, San Diego, and Seattle declined by 60 bps or more. Overall, markets in California and the Southeast saw the greatest improvement in the last four quarters. Among these were San Jose, Nashville, Oakland, Detroit, Jacksonville, Orlando, and Atlanta. The nation’s lowest vacancy rates in Q1 2016 were in San Francisco (6.3 percent), Nashville (6.6), Austin (7.7 percent), Albany (8.0 percent), and San Jose and Raleigh (8.7 percent).
The slight rise in the national vacancy rate was fueled by significant new supply coming to certain markets, including Boston; Washington, D.C.; Dallas; and Orange County. Compounding that issue, D.C. had negative absorption and Dallas only modest absorption, trailing this new supply. However, vacancy rates are higher than they were a year ago in just 13 markets—including Houston, Trenton, Newark, Richmond, Pittsburgh, and Denver.
“We expect the U.S. office market to improve in 2016 as the U.S. economy continues to expand, moving closer to full employment and driving demand for office space,” notes Havsy. “Office demand is expected to outpace new supply in the next two years, further tightening the vacancy rate and keeping rent growth above inflation in a majority of the U.S. office markets.”
