In Spite Of Deceleration in Tenancy and Rent Growth, Increased Workplace Supply Expected to Track with Need
The $333 million purchase of a 9-building office portfolio by Starwood Capital Group in Austin is an example of heightened institutional interest in suburban office.The U.S. office market continued to benefit from strong principles going into 2018, despite continued deceleration in net absorption, occupancy and rental rate growth. With robust business earnings and continued office-using job
development, that pattern is expected to hold through the year as the just recently authorized tax cuts and expected steady increases in rates of interest make U.S. workplace and other institutional-grade residential or commercial property types an attractive location for investors to park capital and get capital.”You’re going to like GDP development over the next couple of months,”CoStar Portfolio Strategy’s Hans Nordby stated during CoStar’s year-end 2017 State of the U.S. Office Market report, co-presented with managing consultant Paul Leonard.”Corporate profit growth is a good story, and if you currently think it’s strong, look beneath the hood. It’s even much better. “The better earnings development outlook for the services sector and other markets that drive office need, in addition to anticipated greater GDP growth projected at a very strong 2.5 %to 3%in the next few months, need to assist office task development hold steady at strong levels for the next couple of month, Nordby stated. The U.S. office job held consistent at 10.1% at the end of the 4th quarter 2017, the same from the exact same duration a year prior, in spite of a large quantity of new supply and a 20%
decrease in office net absorption to 65 million square feet for 2017. On the other hand, the overall amount of workplace property gotten by financiers declined about 15% in 2017 from the prior year, mostly due to a sharp drop in office trades in New york city City and other entrance markets. In spite of the declining sales volume, typical rates in main markets continued to rise, prompting investors to fan out into secondary markets such as suburban Phoenix,
where Transwestern Financial Investment Group and JDM Partners got Marina Heights, State Farm’s workplace school in Tempe, AZ, for $930 million at$459 per square foot. Signs of a deceleration in office sales and leasing appear in numerous workplace boom markets, however, consisting of Nashville and San Jose in California’s Silicon Valley. Developers delivered 2.9 million
square feet in Tennessee’s Music City and 8.5 million square feet in San Jose as jobs begun throughout the height of the existing cycle signed up with workplace stock. In a positive sign, the new stock in both markets is currently about 80% occupied thanks to strong leasing by health-care renters and tech companies such as Apple and Google. “We’ve definitely seen a peak in the office market,”Leonard stated.”Everywhere throughout the board, we’re starting to see a deceleration.”Leonard sees the nationwide office vacancy rate ticking up beginning this year through 2020 as the expected new supply of area lastly begins to exceed demand. Another indication of the slowing office market is the continuing decrease in the portion of U.S. submarkets posting tenancy gains. At the beginning of 2016, more than 60 %of office submarkets saw tenancy gains, according to CoStar details. A year later, that number has fallen to less than half. Despite speculation about over the last couple of quarters about a possible bubble in technology stocks and a decline in equity capital funding, tech renters continued to log huge absorption gains in the office renting market. Office sharing firm WeWork led all business with more
than 7.5 million square feet of office rented in 2017, one-third of that overall in New york city City alone. Amazon and Apple, which each made major announcements recently regarding future office campuses, each rented more than 3 million square feet. Google, Salesforce.com and telecommunications business AT&T and Verizon likewise ranked in the top 10 in workplace leasing last year.Moreover, schedule rates for sublease area have fallen over the past few quarters after ticking up in markets such as San Francisco and Houston in 2016 through early in 2015 during a pause in tech’s dizzying growth of the previous couple of years. Star Turn for Suburban, Tier 2 Markets&The largest investment offers of the 4th quarter showed both the continued health of deal activity and pricing in core coastal markets in addition to rising financier interest in rural, secondary as well as tertiary office markets. Starwood Capital Group paid joint endeavor partners Brandywine Realty Trust and DRA Advisors, LLC roughly$333 million for a 1.2-million-square-foot workplace portfolio in Austin. In the Big Apple, SL Green Real Estate Corp. and RXR Real estate obtained One Worldwide Plaza for$840 million, $829/SF, from New York REIT, Inc. In the west, rural Los Angeles submarkets like Torrance and El Segundo in L.A. County’s South Bay are warming up in the wake of the downtown and
Westside office boom. Starwood Capital scooped up Pacific Corporate Towers in El Segundo for $605 million, $381/SF, from a JV of Blackrock and General Motors Pension Trust.