United States office outlook - Q1 2019

An above-expectations end to 2018 boosted Q1 2019 performance, as office market dynamics firm before further supply delivers.

April 13, 2019

Bouncing off a robust end to 2018, the office market maintained momentum across indicators and geographies throughout the first quarter

Countering increasingly cautious economic sentiment both domestically and globally, the U.S. office market continued its growth streak during the first three months of 2019. Still broadly in expansionary mode, tenants drove roughly 14 million square feet of net absorption, and with the delivery supply wave paused until later in 2019 and further into 2020, the vacancy rate declined slightly to 14.7 percent. Similarly, asking rents remain on a slower-but-still upward trajectory and rose by a steady 0.8 percent over the quarter and 2.4 percent annually, in line with recent quarters.

With 110.4 million square feet of space still under construction, however, the market is still awaiting the critical mass of deliveries to firmly shift conditions into more neutral and even tenant-favorable territory in select geographies. Other themes that have accelerated over the past six to eight quarters, namely flight to quality and divergence in performance by asset class, firmed during Q1 and are expected to continue over the course of 2019.

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