According to a new Marcus & Millichap report on office assets, an improving economy is bolstering the office sector in big ways.
The nearly three million jobs added last year—the highest growth-rate in 15 years—drove growth in the sector, as well as a five-percent jump in GDP growth.
Office vacancy rates are forecast to decline this year by 80 basis points, hitting 14.5 percent, as net absorption for the year tops 104-million square feet. Rent growth is also expected to increase.
San Francisco has the lowest expected vacancy rate in the country, at 8.6 percent. And since 2012, asking office rental rates have shot up from $39.62 to a predicted $52.36 per square foot.
Seattle, another tech industry leader, was ranked number three on the Marcus & Millichap National Office Property Index. Vacancy rates are expected to hit 11.2 percent, a 60-basis-point drop from 2014. Meanwhile, asking rents are forecast to rise 4.4 percent, to $30.40 per square foot. An additional 3.8 million square feet of space are projected to come online in Seattle by the end of the year, and international investors are showing interest.
And one can’t overlook Denver’s hot commercial real estate market when analyzing the office sector. Ranked as the sixth most productive metro area in the country, up from ninth last year, the city is experiencing speculative development for offices, an anomaly in other parts of the country. Vacancy is expected to fall 70 basis points, to 14.6 percent, while rents could shoot up close to five percent, hitting $24.38 per square foot.
But, there is still more recovery needed. At $213 per square foot, national office values are nine percent below the 2007 peak, and cap rates are still at 7.1 percent.
We are continuing to closely monitor the growth of the office sector, both nationally and in the top metro markets, as we look to identify the top investment opportunities around the country.
Related Reading: Trends in Office Space per Office Employee
Image Source: CoStar via Marcus & Millichap