CHICAGO — The recovery across the U.S. office sector continued in the first quarter of 2012, but at a substantially slower pace than witnessed in the latter part of 2010 and throughout 2011, according to Jones Lang LaSalle’s First-Quarter 2012 Office Outlook.
“Overall, the first quarter presented a mixed bag of results and expectations for the rest of the year,” said John Sikaitis, Senior Vice President of Research at Jones Lang LaSalle. “While the recovery slowed during the quarter, it remains intact. Looking ahead to the remainder of 2012, markets will continue to recover and, in some cases, contract at different rates of speed. Overall rents across most markets will grow, but at slow and measured paces unless some significant cushion of technology or energy pockets exist.”
“Greater Boston follows the national trend and includes a mixed bag of results across its submarkets,” commented Lori Mabardi, Research Manager at Jones Lang LaSalle. “That being said, we are seeing firms expand upon lease renewal or relocation speaking to improving business sentiment overall. The high tech and life science industries continue to buoy demand. Both sectors are benefiting from increasing venture capital investment. The Greater Boston vacancy rate remains above long run average, but has been trending in the right direction for a little over a year. We expect this trend to continue.”
First-Quarter 2012 Commercial Real Estate Highlights
The U.S. office market absorbed a little less than 1 million square feet during the quarter – far below the 8.6 million square feet averaged over the prior six quarters.
Nearly two-thirds of the 45 markets tracked demonstrated stable or declining leasing volumes.
Technology expansion and startup activity gained momentum in almost every market with prospects for growth.
Energy-heavy markets posted some of the largest leases and witnessed sales momentum and speculative new construction.
Despite declines in leasing volume, 57.8 percent of the markets saw gains in tour velocity and active tenants compared to the previous quarter.
Sales activity and volume was evenly distributed among geographies with nearly one third of markets reporting an uptick in sales.
Construction remained low across most markets; however, activity has increased from 18.1 million square feet under development to 33.7 million square feet.
Regional Real Estate Highlights
A couple of large blocks of space have come to market this quarter contributing to overall negative absorption levels in Greater Boston That being said, these spaces are in very healthy submarkets and the asking rents for these spaces speak to the quality of the space and/or the confidence of the landlords. Overall confidence in the market is demonstrated by the 3.9% increase in asking rents recorded in the first quarter alone in Greater Boston.
New York, Washington DC, and Chicago
The nation’s largest markets, accounting for more than 25 percent of inventory, lagged substantially and lowered absorption levels for the country with approximately 2.2 million square feet of occupancy declines. Further, Washington DC and New York demonstrated leasing velocity levels that were down nearly 45 percent from the previous quarter. New York and Washington will likely see stagnant fundamentals the remainder of the year because of the uncertain political environment and the financial sector (i.e. uncertain regulatory environment for the financials).
Houston continues to lead new demand driven by the robust energy sector fueled by increasing oil prices and the continued exploration and expansion of the natural gas sector. Absorption neared one million square feet, rents continued to grow and speculative construction returned to the market.
Denver also demonstrated continued market tightening – nearly 250,000 square feet of absorption – largely as a result of emerging natural gas sector.
After lagging the recovery for the past two years, Los Angeles showed increased activity in the first quarter with more than 500,000 square feet of net absorption largely being driven by the entertainment and gaming industries concentrated in the Westside and LA North.
Florida (Fort Lauderdale, Jacksonville, Miami, Orlando, Tampa Bay and West Palm Beach)
Four of the six major markets in Florida demonstrated positive absorption and the state overall registered nearly 400,000 square feet of net absorption.