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Collliers: Potential for Office Market Slowdown in 2007, Despite Current Demand



Reflecting a very strong economy, Q2 was another solid quarter with high demand for office space witnessed nationwide, according to a report by real estate services firm Colliers International.


Reflecting a very strong economy, Q2 was another solid quarter with high demand for office space witnessed nationwide, according to a report by real estate services firm Colliers International.

The findings are in-line with a vibrant U.S. economy. Even though second quarter job creation faltered with 108,000 jobs per month versus 176,000 in the first quarter, office using employment, (employment related to information, financial activities, professional and business services) remained relatively robust, buttressing the health of the office market.

April through June absorption totaled 27.9 million square feet (msf) -- compared with 22.2 million square feeet during the first quarter of 2006 and 26.3 million square feet during the year-ago quarter. Year-to-date absorption totals 50.9 million square feet and Colliers' full-year 2006 forecast of 90 million square feet looks easily attainable, the company says.

The clear majority of markets surveyed by Colliers forecasted steady, if not increased demand for office space in the foreseeable future, with only a few forecasting a downswing in demand.

Second quarter office vacancies measured 13.07 percent, versus 13.33 percent during the first quarter of 2006 and 14.6 percent during the year-ago period. Additionally, vacancies are now significantly below the cyclical high of 16.4 percent registered at the end of 2003.

In line with this vacancy reduction, rents again increased substantially during Q2'06, with national averages showing larger than anticipated gains. Downtown asking rents increased 3.7 percent, reaching an average of $37.54 per square foot, while suburban rents increased 2.3 percent to $24.96 per square foot. Office rents are increasingly showing a more consistent uptrend with ever more markets posting steady quarter-after-quarter increases.

"The office sector is clearly on a tear, but we may be nearing the top of this cycle, as the economy shows increasing signs of slowing," says Ross Moore, senior vice president and director of market and economic research at Colliers International. "Any slowdown, however, won't be felt in the office leasing market until 2007.”

Given the possibility of a slowdown, tenants and investors should consider adjusting their expectations for rents and rental growth as they look 12 months out, Moore says.

New construction totaled 14.6 million square feet during the Q2'06 period and 17.4 million square feet during the first quarter of 2006.

Year-ago completions totaled 12.0 million square feet. Another 84.9 million square feet is under construction and anticipated to be completed in the next 18 months. This reflects marked increases, as during Q1, 82.9 million square feet was under construction and only 58.4 million square feet was under construction during the year-ago quarter.




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  posted on 7/24/2006   Article Use Policy




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