By Eliot Brown
The U.S. office market continued its slow-and-steady recovery in
the first quarter, with technology-heavy markets leading an overall
modest growth of rents and occupancies.
U.S. employers added 6.4 million square feet of space in the
first quarter, causing the vacancy rate to tick down to 16.6% from
16.7% the previous quarter, according to real-estate-research
service Reis Inc. That is still relatively close to the 17.6%
vacancy rate reached after the recession in 2010, and significantly
above historical norms.
Rents also showed modest improvement, with prices sought by
landlords increasing by 0.9% to $30.21 a square foot, up from
$27.50 in 2010, according to Reis, which surveyed 79 markets.
With the labor picture continuing to improve, four-plus years of
incremental growth is adding up to a relatively healthy office
market, giving landlords newfound optimism.
"It's not the best market I've ever seen, but it's certainly on
its way, " said Ryan Severino, an economist at Reis. "All of the
signs are really pointing to a better future."
As has been true for the past few years, the top-performing
markets tended to be those where tech companies are fast-expanding.
The San Jose, Calif., area, which includes Silicon Valley, saw
rents sought by landlords jump 7.2% over the previous year to
$28.03 a square foot, the fastest rent growth in the country.
There, mature technology companies have been adding employees at a
rapid clip. Facebook Inc., for instance, is in the process of
opening a giant Frank Gehry-designed expansion at its headquarters
in Menlo Park, Calif., complete with a sprawling roof garden.
San Jose was followed in the ranking by Seattle, which posted a
6.4% increase in rents over the first quarter of 2014 in large part
because Amazon.com Inc. has been adding space at an unprecedented
rate.
San Francisco, a city where companies that were startups a few
years ago are now leasing large swaths of space, was next, with a
5.9% increase. Uber Technologies Inc., for instance, in March
leased nearly 200,000 square feet in a downtown tower, the latest
in a series of recent leases that expand the company's
footprint.
Similar stories abound, as tech tenants anticipate years of
future growth.
"They have very aspirational hiring projections and they will
need a place for those people," said J.D. Lumpkin, a San
Francisco-based executive director at real estate services firm
Cushman & Wakefield Inc.
While the tech-heavy markets keep growing, there are signs of a
slowdown in markets heavily dependent on oil. Houston, home to
nearly one-sixth of the office space under construction in the
U.S., has seen a jump in sublease space.as energy employers shed
offices.
At the end of the first quarter, 6.3 million square feet of
sublease space was available, up from 4.8 million at the end of
2014, according to real-estate brokerage Savills Studley. These
listings "were dominated by large blocks of space posted by those
directly affected from the new normal of oil prices," the company
said in a report.
Write to Eliot Brown at eliot.brown@wsj.com
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