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U.S. office market statistics, trends, & outlook

Robust growth continues to power demand for space, but competition is cooling as new supply delivers

The third quarter demonstrated further movement towards a more balanced office market, characterized by healthy activity from occupiers, positive but less acute asking rent growth and a widening array of space options across asset segments opening up for users. Even with near-full employment, broad-based macroeconomic fundamentals are keeping sentiment from employers and investors alike positive, maintaining net growth in the coming quarters.

As a result of 37.7 m.s.f. of new construction hitting the market, vacancy has risen by 40 basis points this year to 15.2%. Since 84.1% of currently under-development properties will deliver in the next two years, longer-term increases in vacancy are likely to be more limited and oversupply confined to select pockets. This pullback was evidenced by only 3.5 m.s.f. of space breaking ground in Q3, well below recent quarterly figures.

Even as economic growth – particularly in terms of GDP growth and consumer sentiment – remains strong, the war for talent will keep expansionary activity subdued. The wave of new supply will also improve tenants’ flexibility and leverage, further boosting leasing volumes in the absence of a spike in employment as occupiers take advantage of more generous deal terms spurred by landlords competing for tenancies through larger and more comprehensive incentives packages.

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

     

Click through the tabs below to compare market performance across key categories.

Rental rates ($)

Rents rose by 0.7%, an improvement over the second quarter but still slower than earlier in the recovery as tenant demand remains stable and second-generation blocks hit the market.

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

Absorption continues to be positive, but the 18 m.s.f. of growth seen so far this year is still below previous years and will be the lowest level since 2010 at year-end.

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

Vacancy has risen by 40 basis points over the course of 2018 and will see further increases as new supply delivers.

Market Total vacancy (%)
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Under construction (s.f.)

Construction volumes have shown little change in recent quarters, but will pull back as starts remain below 2015-2017 levels given oversupply concerns.

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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United States office insight - Q3 2018

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