After years of stagnation, the U.S. office real estate market is shifting into second gear.
Yes indeed, :=) U.S. office occupancy growth and rental rates rose at a modest pace during the first half of the year. Compound that info with the knowledge that the national vacancy rate is dropping closer to the 12% mark, as new office construction continues to remain at historically low levels in the first half of 2013. Sounds like a good strategy for a winning team.
Is a state with a strong economy comparable to a winning team? The current Allen Matkins / UCLA Anderson Forecast survey notes that all three coastal Southern California Office Space market counties > Los Angeles, Orange and San Diego < have had a good half , and look promising for the rest of the season. Pundits and fans are planning on a winning next few years, highlighted by a long run of continued growth at the same or higher rates as today in office space. Here is how the professionals put it…
The California Employment Development Department is proud to report that state and local county economies are making significant headway in bring down their unemployment rates. California’s unemployment rate edged down to 8.5% in June, a significant drop from the 10.6% we knew in June 2012. In the past year, employment in the public sector in California expanded by 14,800 jobs – .1%.
In Los Angeles County, in June, unemployment stood at 9.7% – compared to 11.1% a year ago. 39,800 private sector jobs have been added it the past year.
When it comes to the West Side office market, the big question in the office arena is renovated or not? This trend toward open but higher density workspaces requires remodeling. Although landlords are tired of dumping money into their ailing office property > it’s got to be done if you’re going to get a high lease rate.
For Q1-Q2, net absorption of office space across the U.S. rose 25% over the same period last year – to 25 million square feet, according to CoStar.
“The office market recovery is accelerating. Although it feels like we’re just going from 20 to 25 mph, it is headed in the right direction,” noted Hans Nordby, CoStar managing director.
In Los Angeles County, office vacancy rates of 16.8% according to CBRE Group, Inc. New York also remained unchanged at 7.6% In the other markets across the country, office vacancy rates declined – dipping from 12.7% at mid-year 2012 to 12.1% at the close of 2Q 2013.. A 10.5% – 11% vacancy range is what analysts expect in a balanced office market.
Office rents increased by 2% in the first six months 2013, on top of the 1.7% growth seen in the first six months of 2012. Going forward, office net operating income for building owners should grow as leases signed during the recession years start to expire and are replaced by new leases signed at the current higher rents.
“Leases are starting to turn and there is light at the end of the tunnel. Investors who have held on this long will start to experience some NOI growth, assuming their property has maintained a decent level of occupancy,” offered Walter Page, Director of Office Research for CoStar.
Corporate profits remain high, enhancing the ability of companies to hire workers and lease space. As long as office-using employment growth continues to strengthen, forecasters predict that the 12.1% vacancy rate will decline to the 11% range by 2016. Contributing their analysis is the fact that spec office construction has been virtually nil in most markets, so net absorption will outstrip deliveries over the next few years. The lack of new inventory is expected to tip the balance from a tenant market to a landlord market, bringing rising rental rates and net operating incomes.
To buy and sell office real estate please contact Jodi Summers and the SoCal Investment Real Estate Group @ Sotheby’s International Realty – firstname.lastname@example.org or 310.392.1211, and let us move forward together.
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