U.S. office vacancies will drop at a faster pace in the next two years as technology and energy companies drive demand for space, according to CBRE Group Inc.
The vacancy rate probably will fall to 14.3 percent next year and 13.5 percent by the end of 2015, the Los Angeles-based brokerage said today in a report. It was 15.1 percent in the third quarter. A scarcity of new office development and growth in U.S. home prices, which boosts consumer wealth, will also help bolster the market, CBRE said.
National office vacancies peaked three years ago at 16.8 percent following the worst financial crisis since the 1930s. Rents are projected to increase 3 percent next year and 4.4 percent in 2015 as the economy strengthens and the supply of new space remains tight, said Arthur Jones, senior managing economist for CBRE’s Boston-based forecasting group.
“Building owners with low turnover, and that are able to attract top-quality tenants, will be in the best position to grow their income,” Jones said in a telephone interview.
New development will come to about 17 million square feet (1.7 million square meters) this year and 18 million square feet in 2014, according to CBRE’s forecast. Last year’s 9.9 million square feet of completed offices was the lowest total since 1994. The annual average since 1990 is 46 million square feet of new completions, CBRE data show.
About 70 percent of projects under way in the U.S. are in technology-heavy markets such as San Francisco, New York, Boston and San Jose, California, or in Houston and Dallas, where energy firms are fueling job and rent growth, CBRE said.
Manhattan’s new office projects, mostly located downtown near the World Trade Center site and in the West Side’s Hudson Yards area, are being built after a 15-year construction drought, Jones said in the interview. About two-thirds of the office buildings in Manhattan, the biggest U.S. market, are more than 40 years old, he said.