San Jose, California, and Seattle-Tacoma, Washington, hold the top two spots in Marcus & Millichap’s latest National Office Property Index (NOPI). Both markets boast vacancy rates below the national average and significant completions forecast for 2017.
Other trends in office development include the following:
• Net absorption of approximately 83 million square feet (7.7 million sq m) is forecast to generate a 20-basis-point decline in the U.S. vacancy rate to 14.3 percent, marking the low point of the current cycle. The reduction in vacancy could spur an increase in the average asking rent of 3.5 percent.
• This year likely marks the high point in completions for the current cycle, as construction lenders maintain a conservative approach to underwriting office construction. Developers will complete 82 million square feet (7.6 million sq m) of space in 2017, exceeding the amount of new space delivered in the preceding year.
• The outperformance of central business district (CBD) properties led the office sector out of the Great Recession, but the suburbs continue to gain ground and make larger contributions to the overall performance of the office sector.
• Miami-Dade and Tampa/St. Petersburg are the highest-rated Florida markets, while positive supply-and-demand dynamics enabled Nashville, Atlanta, and Charlotte to secure high rankings. Elevated performance allowed Minneapolis/St. Paul to repeat its position as the highest-rated Midwest market.
The NOPI ranks 46 major office markets based on a series of 12-month, forward-looking economic, supply-and-demand variables and was published in Marcus & Millichap’s 2017 U.S. Office Investment Forecast.