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The Ten-X Research Office Market Outlook shows that progress in the U.S. office market continues to be agonizingly slow, which is largely the result of a conflation between markets that have had strong economies this cycle versus those that have lagged.

  • The New York City, Seattle, and Bay Area office markets have enjoyed strong economies and absorption this cycle, but the considerable development they now face in the coming years is dampening their outlook.
  • Weaker economies, mostly in the Midwest, face far less development; however, their poor absorption is also translating to weak fundamentals.
  • This divergence is masked by stagnant U.S.-level figures, as overall vacancies are down just 20 bps from a year ago at 15.8% and effective rent growth slowed to just 1.9% year-over-year, one of the weakest growth rates this cycle.
  • Some Southern markets continue to struggle with the oil price fallout; Houston has seen negative office absorption in three of the last four quarters, bringing vacancies to 18.2%, their highest since 2004.
  • Burgeoning cyclical and secular risks are threatening office absorption. As the labor market approaches full employment, job creation is slowing, thereby lessening the need for office space. On the secular side, cloud computing, telecommuting, and open floor plans are also reducing the space needed per worker.
  • Ten-X Research projects that office fundamentals will make incremental progress through 2018, as vacancies fall to 15.3% and annual rent growth picks up to the mid-2% range.
  • New supply due to hit the market over the remainder of our forecast period will bring vacancies back up to recessionary levels amid our 2019-20 recessionary scenario as absorption turns negative, causing rents to contract mildly.

Ten-X Research’s top office buy-and-sell markets, below, are based on projected NOI growth, vacancy improvement, rent change and valuations as reflected in the Ten-X Research Long-Term Forecast.

T B Office 2Click here to check out the complete Ten-X Office Market Outlook for Summer 2017!