Economy Watch: Office Market Gains Ground in ’15

The U.S. office market is getting healthier.

office spaceThe U.S. office market is getting healthier, according to Reis’ report on the market for the fourth quarter of 2015, which the company released on Tuesday. Vacancies are down, absorption is up, and rents are growing. In fact, some metro areas—New York, Seattle, most California markets—are seeing robust rent growth.

The national vacancy rate declined by 20 basis points during the quarter to 16.3 percent, which represents a slight acceleration in the decline in vacancy compared with recent quarters. The national vacancy rate is now down 130 basis points from the cyclical high reached at the end of 2010, and is the lowest rate since the second quarter of 2009. As Reis’ senior economist and director of research Ryan Severino put it, “the quiet acceleration in the office market recovery is now beginning to make more noise.”

Completion figures—the amount of office space that came on line in the fourth quarter—was 9.597 million square feet, which represents a decrease from last quarter’s 10.631 million square feet and is about on par with completion figures from recent quarters. This too bodes well for the market. Net absorption of 15.322 million square feet in Q4 is an increase from last quarter’s 11.707 million square feet and is the highest such figure since the fourth quarter of 2009, when construction was still slowing due to the recession.

Asking and effective rents both grew 0.8 percent during the fourth quarter, Reis reported, which is the 21st consecutive quarter of growth for those metrics. In eight of the last nine quarters, asking and effective rent growth was up at least 0.7 percent, and Severino predicted that “growth rates should accelerate as the market continues to tighten in the coming years.”