JLL: Booming office market shows 'no signs of a slowdown'

Dive Brief:

The U.S. office market showed no signs of slowing down in the fourth quarter of 2015, helped along by an occupancy growth rate 1.3 times that of new supply, according to real estate research firm JLL. As further testament to the sector's strength, such expansion will continue for the next two years as conditions "showed no signs of a slowdown," GlobeSt.com reported.
Leasing volume in the fourth quarter was 60.4 million square feet, bringing 2015's total to 241.9 million square feet, a 2.5% increase from the same period in 2014, according to JLL. The technology industry represented 15.6% of fourth-quarter leasing activity, while the banking and financial services industry was responsible for 11.2%.
Even in the face of 44.2 million new square feet of supply across the U.S., total vacancies declined to their lowest levels in eight years, falling 40 basis points in the fourth quarter to 14.7%. Sunbelt markets like Jacksonville, FL; Phoenix; Tampa Bay, FL; and Orange County, CA, had the highest average rent growth of 4.4%, while tech markets like San Francisco, Boston and Silicon Valley increased 2.4%.

Dive Insight:

New development continues to be concentrated in a handful of markets, according to JLL's vice president, director of U.S. office research, Julia Georgules, with the top 10 markets accounting for 60 million square feet of the 88 million square feet underway. Georgules said occupancy will outgrow supply in the rest of the markets, causing rents to increase, but average rents in all markets should rise because developers are mostly building premium spaces with high rents.

Business expansion in the fourth quarter absorbed more than 18.7 million square feet of office space for a year-to-date total of 55.5 million square feet, compared with 53.5 million square feet in 2014 and 40 million square feet in 2013.

JLL expects 2016 to be another year of significant growth that will see the delivery of 48.9 million square feet of new supply — 4.7 million square feet more than in 2015.

The report from JLL coincides with the Dodge 2016 Construction Outlook, which predicted office construction starts would rise 17% in 2016. Dodge said improving real estate fundamentals, a recent rise in the popularity of major corporate flagship properties, and increased development of technology and finance firm projects will lead to significant growth for the office sector this year.