Finally, there’s something to smile about for the office sector.
“The quiet acceleration in the office market recovery is now beginning to make more noise,” said Ryan Severino in REIS’ Q4 2015 Preliminary Office Trends report.
The national vacancy rate fell 20 basis points to 16.3% in Q4. Net absorption was 14.322 million SF during Q4, which is the highest level for quarterly net absorption since the third quarter of 2007.
Total net absorption in 2015 was 42.436 million SF, which was the highest annual total since 2007, (and also an increase of 11 million SF from 2014).
“The increase shows newfound strength in a sector that experienced tepid growth for most of the recovery—hobbled by slow expansion in the financial industry and trends such as denser work spaces,” reported The Wall Street Journal.
Asking and effective rents both grew by 0.8% during the quarter and 3.1% and 3.2% respectively year-over-year.
292,000 new jobs were added in December 2015 bringing total job growth to 2.7 million for the year and marking the “longest streak of private-sector job growth on record” at 70 months, according to the Bureau of Labor Statistics. The unemployment rate was unchanged from November and remains at 5.0% at the end of Q4.
“In short, 2015 was the best year for demand in the office market since before the recession,” said Severino.
REIS expects the national vacancy rate will continue to fall by a minimum of 40 basis points this year and that asking and effective rent growth will continue to accelerate by 3.5% and 3.8% year-over-year.
CoStar is also predicting a strong 2016. “With vacancies falling and rents rising in growing numbers of submarkets and slices within the U.S. office sector, demand for office space is expected to remain at post-recession highs for the next two years, according to CoStar Portfolio Strategy analysts recapping the office market’s past year performance.”
An indicator of the recovery is the return of spec office building nationwide. In Atlanta, Seven Oaks Company LLC is breaking ground in January 2016 on a 15-story office building on I-285, reported The Atlanta Business Chronicle. The project will be the fourth office building in an 83-acre mixed use development in Brookhaven call Perimeter Summit. The $140 million project will be known as 4004 Summit. 4004 Summit will be only the second spec office project under construction, after Three Alliance Center.
“Both the central Perimeter and Buckhead are the tightest office districts in metro Atlanta, and both have seen rental rates at trophy buildings reach historic levels,” said Doug Sams. CBD Class A vacancy is 17.3%, and suburban Class A vacancy rate is 16.9%, reported Integra Realty Resources (IRR) in the 2016 Atlanta, GA Office Market Report.
For Atlanta office, vacancy was down 30 basis points to 19.4% in Q4, reported REIS. In Atlanta, average effective rent was $18.11/SF. Asking and effective rents grew 3.3% and 3.4% respectively year-over-year.
Bull Realty, Inc., Research