January 30, 2020
The final quarter of the final year of the last decade proved to be positive for the U.S. office market, according to three reports from commercial real estate firms Cushman & Wakefield, JLL and Newmark Knight Frank.
Cushman & Wakefield analysts commented that “job gains boosted demand for office space, keeping absorption levels consistent with that of the past three years, despite uncertainty surrounding tariffs and trade issues.” The report added that financial services, professional services and information employment increases helped lead to “healthy positive absorption,” while “healthy demand for office space in the fourth quarter of 2019 was matched by rising supply.”
When it came to supply, the JLL analysts pointed out that the market, overall, is “entering the final stages of the development cycle,” which means it will pull back “after the 51 million square feet that will deliver in 2020.” NKF sounded a note of caution about the pipeline, however, pointing out that “the amount of space under construction remains robust, and warrants close monitoring in the year ahead.”
JLL researchers also noted that leasing activity cooled in Q4 2019 “as co-working took a pause on the back of WeWork’s restructuring.” However, “2019 was a banner year for occupancy growth across markets and asset classes,” the analysts noted. NKF’s analysts agreed, pointing out that “tenants continue to show strong interest in new, efficient trophy projects,” though backfilling older, obsolete space remains a challenge.
With an eye to the future, Cushman & Wakefield analysts point out that “as long as employment in office-using sectors continues to rise, demand for office space will increase,” in the coming year, with the new space currently under construction being absorbed. Vacancy is likely to remain stable, with tech-related companies continuing to grow, expand geographically to “find the talent they need.”
JLL forecasts that a “robust 2019 will be followed by a more subdued, but still healthy, 2020.” Much like Cushman & Wakefield, JLL is focused on tenant demand (especially from tech) to drive “widespread occupancy gains,” even as rent growth will cool down.
The NKF researchers are also forecasting a strong 2020, with overall market conditions suggesting “the cyclical expansion will continue into 2020.” Still, the analysts point to an economic consensus that is predicting a “gradual slowing of the economy over the next 12 to 24 months,” while “job creation in office-using sectors, particularly professional and business services” will end up shaping demand for space in the near-to-mid-term.
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