Skip Ribbon Commands
Skip to main content

News release

CHICAGO, IL

U.S. Office Fundamentals Uptick Once Again in Third Quarter 


CHICAGO, Oct. 8, 2015 – With the economy growing at its fastest pace of the current cycle during the third quarter, employers across a range of industries added jobs and expanded their real estate footprints. That activity translated into another quarter of steady but significant improvement in the U.S. office market, according to JLL’s Q3 2015 U.S. Office Outlook, which details increases in net absorption figures and rents as well as dipping vacancy rates.

“We are seeing widespread job growth in the U.S., and it’s being led in particular by companies in the technology, financial and professional and business services sectors, especially those firms located in the dense, urban markets to which talent is migrating,” said Julia Georgules, Vice President of U.S. Office Research for JLL. “With supply remaining constrained in lots of these urban areas as well as some suburban ones, many landlords are more aggressively thinking about repositioning dated and obsolete office product to meet the growing demand.”

U.S. office leasing activity actually declined slightly in the third quarter to 62.3 million square feet, a 3.1 percent dip from the preceding quarter. However, expansionary activity once again remained the dominant driver of leasing, accounting for more than 57.9 percent of leases of 20,000 square feet or more; the quarter marked the fifth straight one in which the majority of such activity stemmed from expansions.

Absorption Grows Again
Occupancy gains mounted in the third quarter, as nationwide net absorption totaled 14.6 million square feet, up from 14.4 million and 6.2 million square feet in the second and first quarters, respectively. Seattle led the country with 1.3 million of net absorption in the quarter, a dynamic fueled by the ongoing growth of the city’s technology sector.

New York and Washington D.C. continued to rebound from first-quarter losses as the two markets combined to post a quarterly net absorption figure 1.4 times greater than their year-to-date occupancy gains. Meanwhile, Chicago, Dallas and Silicon Valley, all of which are experiencing strong and consistent employment growth, together have accounted for 23 percent of the national net absorption in 2015.

Conversely, Fairfield County, Conn., and Westchester County, N.Y., continue to struggle, posting combined quarterly occupancy losses of 1.4 million square feet, while Houston experienced a net absorption of negative 89,000 square feet. The figure marked Houston’s first office occupancy decline since oil prices began their steep descent.

Vacancies Drop, Rents Rise
With office supply remaining constrained across the country, the national vacancy rate declined to 15.1 percent in the third quarter, a 20-basis-point dip from the second quarter and an 80-basis-point drop from one year earlier.

New York, Portland, Salt Lake City and San Francisco each posted a vacancy rate of less than 10 percent in the third quarter. Combined, the four metro areas have seen just 1.8 million square feet of new office space delivered this year; however, the supply-demand imbalance in these markets is set to soon shift, as a total of 20.6 million square feet of new construction will come online in the metro areas over the next two years, giving tenants there some much-needed large-block options.

Overall, 26.6 million square feet of new office space has been delivered across the U.S. so far this year. The development pipeline grew by 8.5 million square feet during the third quarter to reach a total of 92.8 million square feet; the latter figure represents an increase of 16.3 percent from the end of 2014.

Relatedly, the average office rent in the U.S. grew by 1.6 percent during the third quarter for a cumulative 4.3 percent increase since the beginning of 2015. The gains continue to be strongest in Class A properties in CBDs; such office buildings have seen their average rent jump by 9.1 percent so far in 2015. Meanwhile, suburban office markets, led by high-growth areas in Fort Lauderdale, Fla., Oakland, Calif., and Minneapolis, saw their average rent rise by 2.7 percent. 

Looking ahead, the U.S. office market is poised for additional improvement, according to Georgules. “Despite concerns about an impending interest rate hike and China’s faltering economy, we should be optimistic about both the U.S. economy and the office sector,” she said. “With primary markets challenged by limited supply, secondary and tertiary markets – cities like Charlotte, Phoenix, Portland and Salt Lake City – will continue to benefit from occupier growth and investment activity. Additionally, the new supply coming online next year may in fact boost leasing activity far above current levels as tenants shop new options for expansion.”

JLL Capital Markets is a full-service global provider of capital solutions for real estate investors and occupiers. The firm’s in-depth local market and global investor knowledge delivers the best-in-class solutions for clients — whether a sale, financing, repositioning, advisory or recapitalization execution. In 2014 alone, JLL Capital Markets completed $118 billion in investment sale and debt and equity transactions globally. The firm’s Capital Markets team comprises more than 1,700 specialists, operating all over the globe.

To read JLL’s full Q3 2015 U.S. Office Outlook and to view Q3 Office Statistics visit http://www.us.jll.com/united-states/en-us/research/office-outlook. For more news, please visit The Investor, an online and mobile app news source providing real-time commercial real estate news to asset buyers and sellers around the world.

For more news, videos and research resources on JLL, please visit the firm’s U.S. media center Web page: http://bit.ly/18P2tkv.

About JLL
JLL (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. A Fortune 500 company with annual fee revenue of $4.7 billion and gross revenue of $5.4 billion, JLL has more than 230 corporate offices, operates in 80 countries and has a global workforce of approximately 58,000.  On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 3.4 billion square feet, or 316 million square meters, and completed $118 billion in sales, acquisitions and finance transactions in 2014. Its investment management business, LaSalle Investment Management, has $56.0 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit www.jll.com.