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​​​​​​​United States Office Outlook | Q3 2017

The U.S. office market continued to show strength in the third quarter, as leasing activity surged with tenants finding more options among new and second-generation blocks of space.

This quarter’s leasing volume reached 62.4 m.s.f., the highest figure in more than two years. Leases larger than 250,000 square feet drove much of the activity and totaled more than 10.9 million square feet, representing 17.5 percent of all deals done in 2017.

Even with talent shortages intensifying in many markets, tenants continued to expand. Dallas and Seattle-Bellevue led the way, claiming 35.6 percent of all U.S. growth year-to-date.

Despite increased leasing activity, vacancy is rising as new deliveries outpace absorption. Development is hovering near its cyclical high at 101.4 million square feet, but is tapering off as the rate of completions surpasses that of groundbreakings. We expect vacancy to increase further over the next few quarters as more than 75.4 million square feet of new product will deliver to the market through 2018, of which only 48.7 percent is preleased.

Development activity should continue at a moderate pace, with supply and demand balancing out over the long term.

Here are three things to keep an eye on in the coming months:

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Rental rates ($)

Class A rent growth slowed by 120 basis points, but remained firmly positive. Rates will stabilize as lower-priced, second-generation and sublease space become more prominent.

Market Rental rates ($)
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YTD net absorption (s.f.)

Quarterly net absorption hit 12.3 m.s.f., reversing a recent slowdown. Dallas and Seattle-Bellevue have claimed more than a third of all U.S. growth so far this year.

Market YTD net absorption (s.f.)
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Vacancy (%)

Vacancy rose for the fourth consecutive quarter to 15%. We expect total vacancy to inch higher as 75.4 m.s.f of office product delivers through 2018.

Market Vacancy (%)
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Under construction (s.f.)

Groundbreakings remained muted in Q3 and we expect development activity to continue at a moderate pace, balancing supply and demand.

Market Under construction (s.f.)
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United States office property clock

JLL Office Outlook clock (image)

Source: JLL

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