The US office market ended the year on a high note with the vast majority of markets displaying occupancy growth and rental gains.
A number of the usual suspects are missing from the top ranks. Instead, historical “secondary markets” like Phoenix, Raleigh-Durham, Salt Lake City and Miami are topping the list alongside the likes of San Francisco and Silicon Valley. Meanwhile, non-CBD markets with high concentration of technology tenants like Cambridge, are coming back to peak levels, outpacing their respective CBD counterparts.
Fueling the nationwide demand for office space, naturally, is the bustling U.S. economy, which has propelled office fundamentals to their strongest levels in more than six years. JLL’s Q4 2014 U.S. Office Outlook shows that nationwide, net absorption increased by 36.7 percent from 2013, ending the year at 54.7 million square feet.
For leases larger than 20,000 square feet, the numbers are even more compelling. Nearly 50 percent of all large leases experienced occupancy growth, contributing to the second quarter in a row that posted double the rate of growth the U.S. has experienced at any other point during the recovery. Leading the way in Cambridge last quarter was CarGurus leasing 75,000 square feet at Two Canal Park.
New construction in 2014 was more than 68 percent higher on a per-square-foot basis than in 2013. Much of it continues to be concentrated in the CBDs of large metro areas.
A number of non-CBD markets like Cambridge, with its strong tech and life sciences base, are busy with shovels in the ground as well. The demand in East Cambridge, in particular, is so strong that it’s having a ripple effect, helping to drive leasing activity in Boston’s CBD.
“Demand in Cambridge is nearly four times greater than existing supply,” said Peter Bekarian of our Cambridge leasing team. “The vacancy rate is at 7.7 percent and falling. The new construction underway will not be enough to slow the growth of rental rates significantly.
“Rents have soared over the past year,” he continued, “rising 14 percent over the course of the year. While average asking rents for office space in East Cambridge are now just shy of $59 per square foot, some buildings have already achieved rents in excess of $70 per square foot.”
Meanwhile, traditional top tier markets like Boston, Midtown New York, Chicago and Los Angeles are tightening but have yet to reach the cyclical peak.