But the tech sector is still driving demand says Cushman & Wakefield
There was slowdown in net absorption in the US office market in the second quarter of 2019.
The drop to 6.5 million square feet from 10.2 msf in the previous quarter meant the lowest amount of space absorbed since the second quarter of 2012.
A total of 35 markets recorded negative absorption, the largest number of such markets since 2010. Markets that saw large negative absorption included Manhattan (-835,760) and Philadelphia (-842,000).
Cushman & Wakefield says that despite the lower amount of space leased, demand remained high and average rents rose 1.2% over the quarter to a record high of $32.13.
“US office markets were driven by two major factors in the second quarter of 2019 – continuing growth in the technology sector and a rising volume of new construction deliveries,” said Revathi Greenwood, Cushman & Wakefield Americas Head of Research. “The technology sector’s growth offset softness elsewhere and kept absorption of space positive, albeit at a more modest pace than in previous quarters.”
The North California markets – notably Oakland, San Mateo and San Jose – saw stronger activity with markets that Cushman & Wakefield has identified as tech centers in its Tech Cities 2.0 report accounted for a net positive absorption of 4.7 msf, or nearly all the positive absorption during the quarter.
Tech cities also led average year-over-year rent growth with the fastest-growing rents seen in Midtown South Manhattan (+15.8%), followed by Charlotte (+13.1%), Seattle (+11.9%), San Jose (+11.8%), and San Francisco (+9.4%).
Vacancy rate unchanged
Despite the slight slowdown in absorption of space and a slight increase in the amount of space delivered to markets nationwide in Q2 2019, the national vacancy rate remained at 13.0% for the second consecutive quarter.
“While demand moderated in the second quarter, we still see positive momentum in the US economy leading to a healthy second half of 2019 for the office sector,” said Kenneth McCarthy, Cushman & Wakefield Principal Economist and Applied Research Lead. “Overall, fundamentals remain healthy. What’s more, many markets with negative absorption in the quarter are in high-growth corridors that, historically, are among the most resilient in the nation.”
