by Dan Rafter
The U.S. office market is showing signs of cooling, according to the latest research from Cushman & Wakefield. This doesn’t mean, though, that the market is struggling. In fact, rents rose and vacancies fell in the office sector during the second quarter of 2016.
According to Cushman & Wakefield’s numbers, the U.S. office sector absorbed 14.7 million square feet of space in the second quarter. That was up 24.9 percent from the absorption levels in the first quarter, though it was down 36 percent from the same quarter one year earlier.
In the first half of 2016, net absorption was down 34 percent from the first half of last year.
In a bit of a surprise, though, office vacancy levels did not fall. Cushman & Wakefield reported that in the second quarter the national office vacancy rate did not change from the first quarter, clocking in at 13.4 percent. The vacancy rate was down 50 basis points from a year ago and down 400 basis points from its peak in the middle of 2010.
Kevin Thorpe, chief economist with Cushman & Wakefield, said that the cooling in the office sector can be blamed on growing economic uncertainty across the globe and a slower rate of job creation in the United States.
“U.S. businesses have had many curveballs thrown at them this year,” Thorpe said in a statement. “Concerns over the health of China’s economy. Equity market volatility. Weak U.S. GDP growth. Now Brexit.”
U.S. office rents did rise in the quarter, though, increasing by 5.8 percent when cmopared to a year ago. The average U.S. office rent hit $29 a square foot in the second quarter. Since hitting its low point in the middle of 2011, average asking rents in the sector have increased by a solid 18 percent. Of the 87 markets tracked by Cushman & Wakefield, asking rents jumped in 67, fell in 19 and remained the same in one.
The cooling down can be seen in the amount of new office construction, too. Cushman & Wakefield said that about 13 million square feet of office space was added to the nation’s inventory in the second quarter.
“Outside of a handful of markets, the construction cycle continues to lag job creation,” said Kevin McCarthy, principal economist and applied research lead for Cushman & Wakefield, in a statement. “The upshot is that nationally, the threat of overbuilding at this stage in the cycle is minimal.”