Preliminary first quarter office market reports issued this week by Cassisdy & Turley and Jones Lang LaSalle report that leasing and sales activity across the U.S. office sector is proceeding at a substantially slower pace than what occurred in the latter part of 2010 and throughout 2011.
"We are at a point where there is healthy job creation, but over 50 percent of the jobs created in recent months using office space
were temp jobs," said Kevin Thorpe, Cassidy Turley's chief economist. "These jobs don't move the needle immediately for the office sector, but they do set the stage for much stronger demand numbers down the road."
"U.S. office rents hit bottom at the end of 2010. But given that there are still high vacancy levels, there will not be a jump in rents anytime soon in most markets. Overall, asking rents will increase by approximately 1 percent this year," Thorpe said.
[Editor's Note: CoStar Group will issue its own first quarter office market report next week after confirming and accounting fully for deals through the end of March.]
Recovery Slowed but Intact
"Overall, the first quarter presented a mixed bag of results and expectations for the rest of the year," said John Sikaitis, senior vice president of research at Jones Lang LaSalle. "While the recovery slowed during the quarter, it remains intact."
"Looking ahead to the remainder of 2012, markets will continue to recover, and in some cases contract, at different rates of speed," Sikaitis said. "Overall rents across most markets will grow, but at slow and measured paces unless some significant cushion of technology or energy pockets exist."
Nearly two-thirds of the 45 markets tracked by Jones Lang LaSalle demonstrated stable or declining leasing volumes.
Technology expansion and startup activity gained momentum in almost every market with prospects for growth.
Energy-heavy markets posted some of the largest leases and witnessed sales momentum and speculative new construction.
Despite declines in leasing volume, 57.8 percent of the markets saw gains in tour velocity and active tenants compared to the previous quarter.
Sales activity and volume was evenly distributed among geographies with nearly one third of markets reporting an uptick in sales.
Construction remained low across most markets; however, activity has increased from 18.1 million square feet under development to 33.7 million square feet.
Cassidy & Turley noted the following key regional highlights.
• All four census regions recorded net gains in demand for office space.
• The West region led the way with the largest amount of new net demand, followed by the South, then the Midwest and the Northeast, respectively.
• The top 10 markets in terms of net demand for office space included Houston, San Jose, Los Angeles, San Francisco, Seattle, Austin, Denver, Miami, Orlando and Raleigh, NC.
• San Francisco led the country in rent growth compared to a year-ago.
"The energy and the tech-driven markets are the clear standouts right now. It has become a reoccurring theme that markets in Texas and California are leading the nation in most demand and rent growth metrics," Thorpe said.
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