The U.S. office market vacancy rate will continue to decline next year, falling by 80 basis points (bps) to 14.3% by the end of 2014, according to a new analysis from CBRE Group, Inc.
Steady improvement in the office market is expected to continue in 2015, with the vacancy rate forecasted to dip another 80 bps to 13.5%.
The office vacancy rate was 15.1% in Q3 2013, down 170 bps from its peak of 16.8% in Q2 2010.
“The office market recovery is poised to accelerate in 2014, as an improving economy should result in increased office-using employment. The growth in office-using occupations, particularly in high-tech industries, is increasingly pacing demand for office space,” said Arthur Jones, senior managing economist, CBRE Econometric Advisors.
“Home prices have also risen and will soon become an important source of wealth to consumers, which should further bolster the strength of the economy and aid the office market recovery.”
CBRE forecasts that office rents will increase by 3%, on average, in 2014, and rise another 4.4% in 2015, as vacancy levels fall steadily toward the “equilibrium” level over the next two years. However, office rents remain 11% below their peak in Q3 2008, and are not expected to return to this level until the end of 2016, according to CBRE.
“We should see a broader and more sustained recovery in occupancy and rents in 2014 and beyond, as employers continue to hire office workers and more markets bounce back from the housing crisis,” added Jones.
Office development has been subdued throughout the recovery and is expected to remain near historic lows over the next two years.
CBRE projects that only 17.2 million sq. ft. of new office construction will be completed nationally by the end of 2013. While this level is up from just 9.9 million sq. ft. in 2012, it is still well off the long-term historical average since 1990 of 45.9 million sq. ft.
CBRE forecasts that the pace of construction will remain moderate in 2014, with 17.7 million sq. ft. of new completions, and 19.9 million sq. ft. in 2015.
Speculative development remains scarce. The markets with strong growth in high-tech and energy-related industries, such as New York, Boston, Washington, D.C., Houston, Dallas, San Francisco and San Jose, will account for approximately 70% of all new development projects by the end of 2016, according to CBRE.
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