July 17, 2019
U.S. office markets reported net absorption of 6.5 million square feet in Q2 2019, as demand moderated, though rents increased slightly, according to research by Cushman & Wakefield. Demand continued to rise in the quarter, but abated from the previous quarter’s 10.2 million square feet of absorption. It also represented the least amount of space absorbed since the second quarter of 2012.
Cushman & Wakefield Americas Head of Research Revathi Greenwood says, “U.S. office markets were driven by two major factors in the second quarter of 2019 – continuing growth in the technology sector and a rising volume of new construction deliveries. The technology sector’s growth offset softness elsewhere, and kept absorption of space positive, albeit at a more modest pace than in previous quarters.”
On balance U.S. absorption was positive because strong performances were turned in by markets in Northern California, where Oakland, San Mateo and San Jose all recorded healthy absorption.
Across the U.S., the slowdown in absorption was widespread, though. A total of 35 markets recorded negative absorption, the largest number of such markets since 2010, points out CushWake. Markets that experienced large negative absorption included Manhattan (-835,760) and Philadelphia (-842,000).
Other office demand metrics also moderated, particularly leasing. Total leasing volume of 87.1 million square feet was down -9.0% from the first quarter, largely due to a 10% decline in new leasing. Total leasing volume in the quarter was the slowest since the end of 2016.
A total of 14.4 million square feet of office space was completed in Q2, up from 8.7 million square feet in Q1. Cushman & Wakefield currently estimates that a total of 64.6 million square feet of office space will be completed in 2019, the largest amount of square footage delivered to the market since 2008.
The national vacancy rate remained at 13% for the second consecutive quarter. This marks the 15th consecutive quarter that the vacancy rate has remained between 13% and 13.3%.
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