A new market report from CoStar shows that continued strong leasing activity, coupled with barely any new construction, could lead to office rent increases in some U.S. office markets. The report notes that the U.S. office market absorbed 19 million square feet in the third quarter of this year according to data presented at CoStar Group's Third-Quarter 2011 Office Review & Outlook. An excerpt from the report.
The leasing activity helped lower the national office vacancy rate slightly to about 13.1% -- down nearly a half percentage point since hitting its peak a year ago. Should leasing activity remain at the level seen this past quarter, it would set the stage for future rent increases, since little to no new supply is being added. CoStar's analysis found office rents firming or already trending up in some key metros, and more increases are expected to spread across the country by 2013.
Leasing activity, which bottomed out in early 2009, increased in the third quarter as tenants signed long-term commitments to lock in low rents for higher-quality Class A and B buildings. Gross leasing is now approaching levels not seen since the first Internet company boom a decade ago.
The San Francisco Bay area, which has seen some of the most heavily discounted rental rates among office markets, led the country with 4.4 million square feet of net absorption in the third quarter. Similar net absorption strength was found in markets with heavy presence of technology and energy firms. The top five metros for absorption included Seattle/Puget Sound (2.5 million square feet absorbed) Boston (2.1 million square feet), Philadelphia (1.9 million), Houston (1.9 million) and Washington, D.C. (1.7 million). Northern New Jersey led a handful of markets that experienced negative absorption, also including Atlanta, Los Angeles, Westchester/So Connecticut, and Minneapolis.
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