by Dan Rafter
Industrial and multifamily are the asset classes that are booming today, right? Sure. But the U.S. office market is on the rise, too.
That’s the message from the third-quarter office report from Cushman & Wakefield.
According to the report, tenant demand for office space pushed rental rates up in three-fourths of the United States. Cushman & Wakefield reported that office rents in the quarter rose at their fastest pace in seven years.
In somewhat surprising news, Cushman & Wakefield reported that U.S. office markets absorbed just 19.2 million square feet of office space in the third quarter despite an increase in demand. That’s actually down 12.6 percent from the same quarter one year earlier.
But even with this slowdown in absorption, vacancy rates fell to 14.1 percent in the third quarter, down by 10 basis points from the second.”
Kevin Thorpe, chief economist with Cushman & Wakefield, said that the U.S. office market continues to improve even as much of the rest of the globe faces economic challenges, everything from China’s slowdown to the rapid appreciation of the U.S. dollar and the threat of a shutdown in the U.S. government.
“There were plenty of reasons for the office metrics to slump this quarter,” Thorpe said in a statement. “But what we are learning is that the U.S. economy and the property markets are proving, time and time again, to be resilient in the face of all of these headwinds. This quarter was still one of the strongest in the cycle in terms of occupancy gains.”
U.S. office rents increased 3.1 percent in the third quarter compared to one year ago, the strongest quarterly gain since office rents peaked in 2008. Cushman & Wakefield reported that office rents rose in 60 of the 80 metro areas that the brokerage tracks.
The third quarter also saw more new construction, with 107.5 million square feet of office construction. That’s up 25 percent compared to the same quarter one year earlier.
In the Midwest, net office absorption hit 2.6 million square feet in the third quarter, up from 2.2 million square feet one equarter earlier. Office rents in the Midwest jumped 1.1 percent in the third quarter when compared to the second.