Cities With Strong Technology Presence Top Performers in Leasing, Vacancy, Absorption
CHICAGO – Technology drove office leasing growth to a strong conclusion in the fourth quarter of 2017, according to global commercial real estate services firm Cushman & Wakefield. Of the 87 office markets tracked by Cushman & Wakefield, those with a strong technology presence were among the year’s best performers in leasing activity, vacancy level and absorption.
Nationally, new office leasing rose 9.7 percent year-over-year to a total of 312 million square feet (msf), led by geographically large markets like Manhattan (30.5 msf), Dallas (14.6 msf), Chicago (11.6 msf), Houston (10.4 msf), and Los Angeles (10.4 msf).
“In comparatively smaller cities like San Francisco – where new leasing accounted for more than 8.7 msf of office space and represented 11.1 percent of that city’s total inventory, the highest of any U.S. market – tech remains king,” said Ken McCarthy, Principal Economist at Cushman & Wakefield. “The preliminary top leasing markets are a veritable who’s who of technology centers.”
After San Francisco, the top leasing markets relative to inventory include: San Mateo (11.0 percent), Seattle (10.5 percent), San Jose (10.4 percent), Nashville (10.3 percent), San Diego (10.1 percent), and Austin (9.5 percent. Nationwide, new leasing accounted for 5.9 percent of total inventory, up from 5.5 percent at the end of 2016.
Cities with strong technology sectors also saw the lowest major market vacancy rates at the end of 2017. The Midtown South market in Manhattan led with a 6.9 percent vacancy rate, followed by Seattle (7.3 percent), Charlotte, N.C. (8.0 percent), and Raleigh/Durham, N.C. (8.1 percent). Conversely, metro areas with the highest vacancy rates included Fairfield County, Conn. (23.1 percent); Northern Virginia (21.6 percent), Los Angeles CBD (21.2 percent), and Houston (20.2 percent).
Nationally, vacancy remained flat at 13.2 percent for the fifth consecutive quarter, as new construction deliveries of 13.5 msf were almost exactly matched by office absorption of 13.8 msf. However, there are signs of improvement at the local level, according to McCarthy. In the fourth quarter, the overall vacancy rate declined year-over-year in 52 of the 87 markets the firm tracked – an improvement over the third quarter, when 48 markets recorded year-over-year vacancy decreases.
While new construction activity has been a major factor in many markets over the past two years, data for the fourth quarter of 2017 suggests that the construction pipeline may be diminishing. Approximately 54 msf of new construction was completed last year, with the end-of-year pipeline declining to 102.9 msf, the smallest in nearly two years. An additional 69.5 msf is on track to be delivered in 2018, marking the first decline in new construction completions since 2011.
“The cities in which new construction is likely to have the greatest impact are those with the largest volume of new construction relative to inventory,” said Revathi Greenwood, Head of Americas Research. “The cities at the greatest risk of overbuilding – which we define as those with the highest percentage of inventory under construction at the end of last year – include Brooklyn, San Francisco, Austin, San Mateo, Seattle, and Washington, D.C.”
Tech-driven West Coast markets also saw the strongest asking rent growth, led by Santa Clara, Calif., Orange County, Calif., Los Angeles and Oakland/East Bay. Overall average asking rent on available space in all markets (including suburban areas and central business districts) reached a record high of $30.72 per square foot (psf), up 4.2 percent year-over-year and marking the 26th consecutive quarter that rents have increased – the longest streak of rising rents over two decades. Asking rents increased in 68 of the 87 markets tracked by Cushman & Wakefield and declined in only 16.
Midtown Manhattan remais the most expensive market at $76.94 psf, followed by San Francisco at $71.02, Midtown South Manhattan at $68.87, Downtown Manhattan at $60.23 and San Mateo at $57.15. The end of 2017 was the first time on record that asking rents topped $60 in four markets, McCarthy said.
About Cushman & Wakefield
Cushman & Wakefield is a leading global real estate services firm with 45,000 employees in more than 70 countries helping occupiers and investors optimize the value of their real estate. Cushman & Wakefield is among the largest commercial real estate services firms with revenue of $6 billion across core services of agency leasing, asset services, capital markets, facility services (C&W Services), global occupier services, investment & asset management (DTZ Investors), project & development services, tenant representation, and valuation & advisory. To learn more, visit www.cushmanwakefield.com or follow @CushWake on Twitter.